METROCORP BANCSHARES INC, S-1, 1998-09-01

METROCORP BANCSHARES INC
S-1, 1998-09-01

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1998

REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------

METROCORP BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
TEXAS 6712 76-0579161
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

DON J. WANG
PRESIDENT
9600 BELLAIRE BOULEVARD, SUITE 252 9600 BELLAIRE BOULEVARD, SUITE 252
HOUSTON, TEXAS 77036 HOUSTON, TEXAS 77036
(713) 776-3876 (713) 776-3876
(Address, including zip code, (Name, address, including zip code,
and telephone number, including and telephone number, including
area code, of registrant's area code, of agent for service)
principal executive offices)

---------------------

COPIES TO:

WILLIAM T. LUEDKE IV, ESQ. RICHARD A. SCHABERG, ESQ.
BRACEWELL & PATTERSON, L.L.P. THACHER PROFFITT & WOOD
2900 SOUTH TOWER PENNZOIL PLACE 1700 PENNSYLVANIA AVENUE, N.W.,
HOUSTON, TEXAS 77002-2781 SUITE 800
WASHINGTON, D.C. 20006

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the same
offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value.................... 1,600,000 $12.00 $19,200,000 $5,664
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 1, 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

1,600,000 SHARES

LOGO

METROCORP BANCSHARES, INC.

COMMON STOCK
--------------

All 1,600,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are
being sold by MetroCorp Bancshares, Inc. (the "Company"). Prior to the Offering,
there has been no established public market for the Common Stock. The initial
public offering price will be determined by negotiations between the Company and
Legg Mason Wood Walker, Incorporated (the "Underwriter"). It is estimated that
the initial public offering price will be in the range of $10.00 to $12.00 per
share. See "Underwriting." Application has been made to have the shares of
Common Stock approved for quotation on The Nasdaq Stock Market's National Market
("Nasdaq/National Market") under the symbol MCBI.

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.

SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting offering expenses payable by the Company, estimated at
$350,000.

(3) The Company has granted the Underwriter a 30-day option to purchase up to
240,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be approximately $ , $ and $
respectively. See "Underwriting."
-------------------

The shares of Common Stock to be distributed to the public are offered by
the Underwriter, subject to prior sale, when, as and if received and accepted by
the Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the certificates for the shares of Common Stock
will be made against payment therefor in Houston, Texas on or about ,
1998.

LEGG MASON WOOD WALKER
INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[MAP OF TEXAS LOCATIONS]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF THE COMMON
STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. THE UNDERWRITER (AND SELLING GROUP MEMBERS) ALSO MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

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<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED. ALL INFORMATION HAS BEEN
ADJUSTED TO GIVE EFFECT TO THE HOLDING COMPANY FORMATION COMPLETED IN OF
1998, PURSUANT TO WHICH 5,654,560 SHARES OF COMMON STOCK WERE ISSUED IN A FOUR
FOR ONE EXCHANGE FOR ALL OF THE CAPITAL STOCK OF METROBANK, NATIONAL
ASSOCIATION. REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS INCLUDE REFERENCES
TO METROBANK, NATIONAL ASSOCIATION WHERE THE CONTEXT REQUIRES.

THE COMPANY

MetroCorp Bancshares, Inc. (the "Company") is a bank holding company
headquartered in Houston, Texas. The Company derives substantially all of its
revenue and income from the operation of its wholly-owned bank subsidiary,
MetroBank, National Association (the "Bank"), a national banking association
with 11 full-service banking locations, nine of which are located in the greater
Houston metropolitan area and two of which are located in the greater Dallas
metropolitan area. The Company also has a loan production office in New Orleans,
Louisiana. As of June 30, 1998, the Company had total assets of $527.6 million,
total loans of $366.4 million, total deposits of $487.0 million and total
shareholders' equity of $34.0 million. Based on total assets as of June 30,
1998, the Company is the fourth largest independent bank holding company
headquartered in the Houston metropolitan area.

The Bank was founded in 1987 by a group of six Asian-American business
people, all of whom are currently directors of the Company and the Bank, to meet
the needs of various ethnic communities in Houston that were not adequately
being served by local financial institutions. Each of the Company's 11 banking
offices has been strategically located in an area with large Asian or Hispanic
communities in Houston, and more recently, Dallas. The Company focuses on these
niche markets by providing personalized, culturally sensitive and innovative
products and services.

The Company's mission is to enhance shareholder value by maximizing
profitability and being the premier multi-ethnic bank in each community that it
serves. Over its 11 year history, the Company has demonstrated a consistent
record of asset growth and profitability. For each of the last ten years, the
Company has recorded a profit, even during the period of adverse economic
conditions in Texas in the late 1980s. The Company's net income increased from
$1.0 million in fiscal 1990 to $4.2 million in fiscal 1997, and for the six
months ended June 30, 1998, the Company recorded net income of $2.8 million.
Return on shareholders' equity for the six months ended June 30, 1998 was 17.7%.
Balance sheet growth has also been strong, with total assets increasing from
$168.9 million at December 31, 1990 to $527.6 million at June 30, 1998.

Management believes that both the Asian and Hispanic communities present
excellent opportunities for future growth. These communities together comprise
almost one-third of the total population of the greater Houston metropolitan
area and approximately one-quarter of the total population of the greater Dallas
metropolitan area. While many of the Company's competitors either fail to
recognize the cultural distinctions among various ethnic groups, or focus on
only one isolated group, management of the Company is acutely aware of and
understands the unique cultural nuances of each community that it serves.
Multi-ethnic customers require a special level of understanding from their
banker, whether it be the specific characteristics of the businesses they
operate or the native dialect in which they converse. In order to better serve
its customers, the Company recruits bilingual and multilingual employees,
publishes Company literature in four languages (English, Spanish, Vietnamese and
Chinese) and celebrates cultural holidays such as Chinese New Year and Cinco de
Mayo at its branches. In addition, the active involvement of directors and
officers in various ethnic civic organizations allows management to better
understand and respond to the needs of each community it serves.

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<PAGE>
Management believes the Company has developed a reputation as the premier
provider of financial products and services to small and medium-sized businesses
and consumers located in the Asian and Hispanic communities where it operates.
The Company offers these businesses a wide variety of traditional loan products
and specializes in lending to customers who own and operate service-oriented
businesses. The Company is a Preferred Lender under the federally guaranteed
Small Business Administration ("SBA") lending program and has expertise in
originating SBA loans to minority-owned businesses. In order to better serve the
unique financing needs of its commercial customers, the Company also offers
specialized products such as accounts receivable financing through its
subsidiary, Advantage Finance Corporation ("Advantage"), and trade finance loans
and letters of credit. The Company offers a broad array of loan and deposit
products and services to retail customers through its branch network in Houston
and Dallas. Loans to retail customers include residential mortgage loans,
residential construction loans, automobile loans, lines of credit and other
personal loans. Retail deposit products and services include checking and
savings accounts, money market accounts, time deposits, ATM cards, debit cards
and on-line banking.

The Company's overall business strategy is to (i) continue to service its
small and medium-sized owner-operated businesses and retail customers especially
in the Asian and Hispanic communities by providing individualized, responsive,
quality service, and (ii) expand its geographic reach by looking for additional
opportunities either through selective acquisitions of existing financial
institutions or by establishing de novo branches in multi-ethnic markets with
significant small and medium-sized business activity.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the
Company......................... 1,600,000 shares

Common Stock to be outstanding
after the Offering(1)........... 7,254,560 shares

Use of Proceeds................... Of the $16.0 million of estimated net proceeds,
approximately $4.0 million will be used to increase the
capital of the Bank and the remainder will be used for
general corporate purposes, including the support of
anticipated balance sheet growth in the Company's
current market and possible market expansions and
acquisitions.

Risk Factors...................... See "Risk Factors" for a discussion of certain factors
that should be considered by each prospective investor.

Nasdaq/National Market Symbol..... MCBI
</TABLE>

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(1) Excludes 120,000 shares of Common Stock reserved for issuance upon the
exercise of options heretofore granted under the Company's stock option
plans. See "Management--Stock Plans." As of the date of this Prospectus, the
Company had outstanding 5,654,560 shares of Common Stock. See
"Capitalization."

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The following Summary Consolidated Financial Data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto (the "Consolidated Financial
Statements"), the information contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other financial
information included elsewhere in this Prospectus. Certain prior year amounts
have been reclassified to conform with the 1998 presentation.

<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income................................ $ 13,310 $ 10,863 $ 23,017 $ 17,596 $ 13,425 $ 10,488 $ 9,213
Provision for loan losses.......................... 1,889 964 3,350 2,118 792 422 557
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for loan
losses......................................... 11,421 9,899 19,667 15,478 12,633 10,066 8,656
Noninterest income................................. 2,507 1,966 4,391 3,446 2,903 3,312 3,681
Noninterest expense................................ 9,887 8,780 18,096 16,102 11,845 9,978 9,520
--------- --------- --------- --------- --------- --------- ---------
Net income before taxes.......................... 4,041 3,085 5,962 2,822 3,691 3,400 2,817
Provision for income taxes......................... 1,228 901 1,794 809 1,091 895 798
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 2,813 $ 2,184 $ 4,168 $ 2,013 $ 2,600 $ 2,505 $ 2,019
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

PER SHARE DATA:
Net income-Basic................................... $ 0.50 $ 0.39 $ 0.75 $ 0.38 $ 0.52 $ 0.54 $ 0.45
Net income-Diluted................................. 0.50 0.39 0.74 0.37 0.51 0.53 0.44
Book value......................................... 6.02 5.12 5.49 4.73 4.38 3.99 3.77
Tangible book value................................ 6.02 5.12 5.49 4.73 4.38 3.99 3.77
Cash dividends..................................... -- -- -- -- -- 0.125 --
Weighted average shares outstanding (in thousands):
Basic............................................ 5,655 5,585 5,581 5,364 5,015 4,658 4,534
Diluted.......................................... 5,655 5,655 5,616 5,444 5,104 4,764 4,641

BALANCE SHEET DATA:
Total assets....................................... $ 527,624 $ 468,758 $ 505,051 $ 426,987 $ 322,799 $ 231,205 $ 191,491
Securities......................................... 107,589 117,697 112,624 103,680 110,761 92,399 58,683
Total loans........................................ 366,361 303,430 348,910 280,597 177,206 125,769 116,311
Allowance for loan losses.......................... 5,395 2,624 3,569 2,141 1,612 1,264 1,345
Total deposits..................................... 487,027 414,456 445,859 381,289 285,153 197,135 162,768
Total shareholders' equity......................... 34,039 28,932 30,506 25,398 23,519 18,595 17,577

PERFORMANCE RATIOS(1):
Return on average assets........................... 1.09% 0.98% 0.89% 0.54% 0.96% 1.21% 1.09%
Return on average equity........................... 17.70 16.24 14.69 8.36 12.06 14.74 12.49
Net interest margin................................ 5.46 5.21 5.22 5.02 5.27 5.42 5.44
Efficiency ratio................................... 62.51 68.86 66.48 76.73 72.82 72.22 75.04

ASSET QUALITY RATIOS:
Nonperforming assets to total loans and ORE........ 1.39% 1.53% 0.94% 0.82% 1.01% 1.22% 2.29%
Nonperforming assets to total assets............... 0.96 1.00 0.65 0.54 0.56 0.67 1.41
Net loan charge-offs to average loans.............. 0.02 0.16 0.62 0.71 0.30 0.42 0.54
Allowance for loan losses to total loans........... 1.47 0.86 1.02 0.76 0.91 1.01 1.16
Allowance for loan losses to nonperforming
loans(2)......................................... 108.99 100.69 134.02 135.42 127.53 131.26 111.99

CAPITAL RATIOS:
Leverage ratio..................................... 6.34% 6.17% 5.92% 6.04% 7.30% 8.63% 8.96%
Tier 1 risk-based capital ratio.................... 8.71 9.00 8.45 8.69 10.65 12.82 13.16
Total risk-based capital ratio..................... 10.12 9.83 9.46 9.44 11.39 13.66 14.18
</TABLE>

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(1) All interim periods have been annualized.

(2) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans.

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. IN
ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN,
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. INFORMATION CONTAINED IN THIS
PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "WILL,"
"SHOULD," "PROJECTED," "CONTEMPLATED" OR "ANTICIPATES" OR THE NEGATIVE THEREOF
OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. NO ASSURANCE CAN BE GIVEN
THAT THE FUTURE RESULTS COVERED BY THE FORWARD-LOOKING STATEMENTS WILL BE
ACHIEVED. THE FOLLOWING FACTORS COULD CAUSE ACTUAL EXPERIENCE TO VARY MATERIALLY
FROM THE FUTURE RESULTS COVERED IN SUCH FORWARD-LOOKING STATEMENTS. OTHER
FACTORS, SUCH AS THE GENERAL STATE OF THE ECONOMY, COULD ALSO CAUSE ACTUAL
EXPERIENCE TO VARY MATERIALLY FROM THE MATTERS COVERED IN SUCH FORWARD-LOOKING
STATEMENTS.

EXPOSURE TO LOCAL ECONOMIC CONDITIONS

The Company's success is dependent to a significant extent upon general
economic conditions in Texas. The banking industry in Texas is affected by
general economic conditions such as inflation, recession, unemployment and other
factors beyond the Company's control. During the mid 1980s, severely depressed
oil and gas and real estate prices materially and adversely affected the Texas
economy, causing recession and unemployment in the region and resulting in
excess vacancies in the real estate market. Since 1987, the Texas economy has
improved in part due to its expansion into industries other than those related
to energy. As the Texas economy has diversified away from the energy industry,
however, it has become more susceptible to adverse effects resulting from
recession in the national economy. Economic recession over a prolonged period or
other economic dislocation in Texas could cause increases in nonperforming
assets, thereby causing operating losses, impairing liquidity and eroding
capital. There can be no assurance that future adverse changes in the Texas
economy would not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.

INTEREST RATE RISK

The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
loans and investments and the interest expense paid on deposits and other
borrowings. These rates are highly sensitive to many factors which are beyond
the Company's control, including general economic conditions and the policies of
various government and regulatory authorities. Increases in the discount rate by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board")
usually lead to rising interest rates, which affect the Company's interest
income, interest expense and investment portfolio. Also, governmental policies
such as the creation of a tax deduction for individual retirement accounts can
increase savings and affect the cost of funds. From time to time, maturities of
assets and liabilities are not balanced, and a rapid increase or decrease in
interest rates could have an adverse effect on the net interest margin and
results of operations of the Company. The nature, timing and effect of any
future changes in federal monetary and fiscal policies on the Company and its
results of operations are not predictable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Interest Rate
Sensitivity and Liquidity."

COMPETITION

The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes with
other commercial banks, savings banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms, asset-based non-bank lenders and certain other
non-financial entities, including retail stores which may maintain their own
credit programs and certain governmental organizations which may offer more
favorable financing than the Company. Many of such competitors may have greater
financial and other

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resources than the Company. Competition for Asian business from both
superregional banking institutions and other Asian-owned community banks is
particularly keen in several of the Company's market areas. The Company has been
able to compete effectively with other financial institutions by emphasizing
customer service, technology and local office decision-making; by establishing
long-term customer relationships and building customer loyalty; and by providing
products and services designed to address the specific needs of its customers.
Although the Company has been able to compete effectively in the past, no
assurances may be given that the Company will continue to be able to compete
effectively in the future. Various legislative acts in recent years have led to
increased competition among financial institutions. There can be no assurance
that the United States Congress or the Texas legislature will not enact
legislation that may further increase competitive pressures on the Company.
Competition from both financial and nonfinancial institutions is expected to
continue. See "The Company--Competition."

NO PRIOR TRADING MARKET

Prior to the Offering, there has been no public market for the shares of
Common Stock. Application has been made to have the Common Stock approved for
quotation on the Nasdaq/National Market under the symbol MCBI. The Underwriter
has advised the Company that it intends to make a market in the Common Stock as
long as the volume of trading activity in the Common Stock and certain other
market making conditions justify doing so. Nonetheless, there can be no
assurance that an active public market will develop or be sustained after the
Offering or that if such a market develops, investors in the Common Stock will
be able to resell their shares at or above the initial public offering price.
Making a market involves maintaining bid and asked quotations for the Common
Stock and being available as principal to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and other
regulatory requirements. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of willing buyers and sellers of the Common Stock at any given
time, which presence is dependent upon the individual decisions of investors
over which neither the Company nor any market maker has any control.

RESTRICTIONS ON ABILITY TO PAY DIVIDENDS

The only cash dividend ever paid by the Company was a $0.125 per share
dividend in 1994. Although the Company anticipates paying quarterly dividends
aggregating $0.24 per share per annum beginning in the fourth quarter of 1998,
there is no assurance that the Company will pay dividends on the Common Stock in
the future. The declaration and payment of dividends on the Common Stock will
depend upon the earnings and financial condition of the Company, liquidity and
capital requirements, the general economic and regulatory climate, the Company's
ability to service any equity or debt obligations senior to the Common Stock and
other factors deemed relevant by the Company's Board of Directors. It is the
policy of the Federal Reserve Board that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
banking subsidiaries.

The Company's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that the Company receives from the Bank. The
payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal banking laws, regulations and authorities. Until
capital surplus equals or exceeds capital stock, a national bank must transfer
to surplus ten percent (10%) of its net income for the preceding four quarters
in the case of an annual dividend or ten percent (10%) of its net income for the
preceding two quarters in the case of a quarterly or semiannual dividend. The
Bank's capital surplus exceeds its capital stock. Without prior approval, a
national bank may not declare a dividend if the total amount of all dividends
declared by the bank in any calendar year exceeds the total of the bank's
retained net income for the current year and retained net income for the
preceding

7
<PAGE>
two years. As of June 30, 1998, an aggregate of approximately $7.5 million was
available for payment of dividends by the Bank to the Company under applicable
restrictions, without regulatory approval. See "Supervision and Regulation--The
Bank."

The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by statute.
In addition, the relevant federal regulatory agencies also have authority to
prohibit an insured bank from engaging in an unsafe or unsound practice, as
determined by the agency, in conducting an activity. The payment of dividends
could be deemed to constitute such an unsafe or unsound practice, depending on
the financial condition of the Bank. Regulatory authorities could impose
administratively stricter limitations on the ability of the Bank to pay
dividends to the Company if such limits were deemed appropriate to preserve
certain capital adequacy requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Capital Resources" and
"Supervision and Regulation."

SHARES AVAILABLE FOR FUTURE SALE

The Company will have 7,254,560 shares of Common Stock outstanding after the
Offering. The Company, its executive officers and directors and certain
shareholders (who collectively will own % of the outstanding shares of
Common Stock after the consummation of the Offering) have agreed with the
Underwriter not to offer, sell, contract to sell or otherwise dispose of any of
their shares of Common Stock for a period of 180 days after the date of this
Prospectus without the permission of the Underwriter, except that the Company
may issue shares of Common Stock upon the exercise of currently outstanding
options. The currently outstanding shares of Common Stock which are not subject
to such agreement are held by approximately shareholders of record, and all
of such shares are "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act and will be eligible for sale in compliance
with Rule 144 volume and other requirements. Shares held for at least two years
by a person who has not been an "affiliate" of the Company at any time during
the 90 days preceding the sale of the shares will be freely tradable in
accordance with Rule 144(k) under the Securities Act. In addition, all of the
shares of Common Stock sold in the Offering, other than shares purchased by
affiliates of the Company, will generally be freely tradable under the
Securities Act. No prediction can be made as to the effect, if any, that future
sales of Common Stock or the availability of Common Stock for future sale will
have on the market price of the Common Stock prevailing from time to time. Sales
of a substantial number of such shares in the future, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock. See "Management" and "Principal Shareholders."

IMPACT OF TECHNOLOGICAL ADVANCES; YEAR 2000 COMPLIANCE

The banking industry is undergoing rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to
improving customer services, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend, in part, on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience, as well as to create additional efficiencies
in its operations. Many of the Company's competitors have substantially greater
resources than the Company to invest in technological improvements. There can be
no assurance that the Company will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to the public.

The Company's operations are dependent on computers and computer systems,
whether internally maintained or outsourced under contract. The Company has
taken steps to ensure that such systems will properly recognize information when
the year changes to 2000. Systems that do not properly recognize the correct
year could generate erroneous data or cause a system to fail. The Company uses a
vendor-provided system as its "core" banking application software to process
data pertaining to its demand deposits, savings

8
<PAGE>
accounts, certificates of deposit and other deposits, loans and similar items.
The provider has indicated that it will certify the Company's "core" banking
applications to be Year 2000 compliant, and testing is expected to be completed
during 1999. The Company believes that it is in compliance with federal bank
regulatory directives in this area. There can be no assurance, however, that the
Company will be able to effectively implement program changes to all of its
systems to ensure such compliance. The Company has a backup system in place in
the event that its current systems are not Year 2000 compliant.

Management of the Company believes that costs of addressing potential Year
2000 issues will not have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. In addition,
the Company is currently considering the purchase of hardware and core banking
application software to perform all functions in-house. Management believes the
purchase and processing of data in-house will not have a significant impact on
the Company's ability to comply with Year 2000 issues. Nonetheless, the
Company's ability to predict the costs associated with Year 2000 compliance is
subject to some uncertainties, and the Company may incur additional unexpected
expenditures in connection with Year 2000 compliance, which expenditures could
be material.

DILUTION OF COMMON STOCK

Investors purchasing shares of Common Stock in the Offering will incur
immediate dilution of approximately 37.27% in their investment, in that the
tangible book value of the Company after the Offering will be approximately
$6.90 compared with an assumed initial public offering price of $11.00 per
share. Options to purchase a total of 120,000 shares of Common Stock were
outstanding under the Company's stock option plans as of the date of this
Prospectus, all of which were exercisable at a price of $11.00 per share. If the
shares subject to such options under the Company's stock option plans were
included in the foregoing calculations, further dilution to new shareholders
would be incurred. See "Dilution."

DETERMINATION OF MARKET PRICE AND POSSIBLE VOLATILITY OF STOCK PRICE

The initial public offering price of the shares of Common Stock will be
determined by negotiations between the Company and the Underwriter and will not
necessarily bear any relationship to the Company's book value, past operating
results, financial condition or other established criteria of value and may not
be indicative of the market price of the Common Stock after the Offering. Among
the factors considered in such negotiations are prevailing market and general
economic conditions, the market capitalizations, trading histories and
performance of other traded companies that the Company and the Underwriter
believe to be comparable to the Company, the results of operations of the
Company in recent periods, the current financial position of the Company and
estimates of business potential of the Company. Additionally, consideration was
given to the general status of the securities market, the market conditions for
new issues of securities and the demand for securities of comparable companies
at the time the Offering was made. See "Nature of the Trading Market" and
"Underwriting" for information relating to the method of determining the initial
public offering price. The stock market has from time to time experienced price
and volume volatility. These market fluctuations may be unrelated to the
operating performance of particular companies whose shares are traded and may
adversely affect the market price of the Common Stock. There can be no assurance
that the market price of the Common Stock will not decline below the initial
public offering price.

POSSIBLE ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and Bylaws contain certain
provisions which may delay, discourage or prevent an attempted acquisition or
change in control of the Company. These provisions include: (i) a Board of
Directors classified into three classes of directors with the directors of each
class having staggered, three-year terms, (ii) a provision that any special
meeting of shareholders of the Company may be called only by a majority of the
Board of Directors, the Chairman of the Board, the

9
<PAGE>
President or the holders of at least 50% of the shares entitled to vote on the
matter, (iii) 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 (iv) a
provision that denies shareholders the right to amend the Bylaws of the Company.
The Company's Articles of Incorporation provide for noncumulative voting for
directors and authorize the Board of Directors of the Company to issue shares of
preferred stock of the Company, $1.00 par value per share, without shareholder
approval and upon such terms as the Board of Directors may determine. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a controlling interest in the
Company. In addition, certain provisions of Texas law, including a provision
which restricts certain business combinations between a Texas corporation and
certain affiliated shareholders, may delay, discourage or prevent an attempted
acquisition or change in control of the Company. Individuals, alone or acting in
concert with others, seeking to acquire 10% or more of any class of voting
securities of the Company must comply with the Change in Bank Control Act, which
requires the prior approval of the Federal Reserve Board for any such
acquisition. Entities seeking to acquire 5% or more of any class of voting
securities of, or otherwise to control, the Company must obtain the prior
approval of the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended ("BHCA"). Accordingly, prospective investors need to be aware
of and to comply with these requirements, if applicable, in connection with any
purchase of shares of the Common Stock offered hereby and such requirements may
delay, discourage or prevent an attempted acquisition or change in control of
the Company. See "Description of Securities of the Company--Preferred Stock" and
"--Texas Law and Certain Provisions of the Articles of Incorporation and Bylaws"
and "Supervision and Regulation."

SUPERVISION AND REGULATION

Bank holding companies and banks operate in a highly regulated environment
and are subject to
extensive supervision and examination by several federal and state regulatory
agencies. The Company is subject to the BHCA, and to regulation and supervision
by the Federal Reserve Board. The Bank, as a national banking association, is
subject to regulation and supervision by the Office of the Comptroller of the
Currency ("OCC") and, as a result of the insurance of its deposits, by the
Federal Deposit Insurance Corporation ("FDIC"). These regulations are intended
primarily for the protection of depositors and customers, rather than for the
benefit of investors. The Company and the Bank are subject to changes in federal
and state laws, as well as changes in regulations and governmental policies,
income tax laws and accounting principles. The effects of any potential changes
cannot be predicted but could adversely affect the business and operations of
the Company and the Bank in the future. See "Supervision and Regulation."

The Federal Reserve Board has adopted a policy that requires a bank holding
company such as the Company to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve Board has required bank holding
companies to contribute cash to their troubled bank subsidiaries based upon this
"source of strength" policy, which could have the effect of decreasing funds
available for distributions to shareholders. In addition, a bank holding company
in certain circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary. See "Supervision and Regulation."

10
<PAGE>
THE COMPANY

GENERAL

The Company was incorporated as a business corporation under the laws of the
State of Texas in 1998 to serve as a holding company for the Bank. Based on
total assets at June 30, 1998, the Company is the fourth largest independent
banking organization headquartered in Houston. The Company's headquarters are
located at 9600 Bellaire Boulevard, Suite 252, Houston, Texas 77036, and its
telephone number is (713) 776-3876.

The Bank was organized in 1987 by Don J. Wang, the Company's current
Chairman of the Board and President, and five other Asian-American small
business owners, all of whom currently serve as directors of the Company and the
Bank. The organizers perceived that the financial needs of various ethnic groups
in Houston were not adequately being served and sought to provide modern banking
products and services that accommodated the cultures of the businesses operating
in these communities. Although it was formed primarily to service the Asian
community, in 1989 the Company expanded its service philosophy to Houston's
Hispanic community by acquiring from the FDIC the assets and liabilities of a
community bank located in a primarily Hispanic section of Houston. This
acquisition not only broadened the Company's market but increased its assets
from approximately $30.0 million to approximately $100.0 million. Other than
this acquisition, the Company has accomplished its growth internally through the
establishment of de novo branches in areas with large Asian communities. Since
its formation in 1987, the Company has established seven branches in the greater
Houston metropolitan area. In 1996, the Company expanded into the Dallas market.
The success of this branch, whose deposits increased to $30.5 million in just
two years, prompted the Company to establish a second branch in the greater
Dallas metropolitan area in 1998. In 1996, the Company established a loan
production office in New Orleans, Louisiana primarily to service the Asian-owned
businesses operating in the fisheries industry in that area. As a result of
these expansion activities and strong internal growth, the Company has developed
from an organization with one banking location and assets of $3.0 million at its
inception in 1987 to its current 11 full-service banking locations and assets of
$527.6 million at June 30, 1998.

The Company's mission is to enhance shareholder value by maximizing
profitability and being the premier multi-ethnic bank in each community that it
serves. Over its 11 year history, the Company has demonstrated a consistent
record of asset growth and profitability. For each of the last ten years, the
Company has recorded a profit, even during the period of adverse economic
conditions in Texas in the late 1980s. The Company's net income increased from
$1.0 million in fiscal 1990 to $4.2 million in fiscal 1997, and for the six
months ended June 30, 1998, the Company recorded net income of $2.8 million.
Return on shareholders' equity for the six months ended June 30, 1998 was 17.7%.
Balance sheet growth has also been strong, with total assets increasing from
$168.9 at December 31, 1990 to $527.6 million at June 30, 1998.

The Company operates in a niche market by addressing the banking needs of
the Asian and Hispanic communities in Houston and Dallas by providing
personalized, culturally sensitive service. The Company has strategically opened
each of its 11 banking offices in an area with a large Asian or Hispanic
community and intends to pursue branch opportunities in multi-ethnic markets
with significant small and medium-sized business activity. Management believes
that both the Asian and Hispanic communities present excellent opportunities for
future growth. The greater Houston metropolitan area is home to an Asian
population of approximately 170,000, with people of Vietnamese, Chinese, Korean
and Taiwanese ancestry comprising the four largest groups. Houston's Hispanic
population is approximately 820,000 and represents approximately one-quarter of
the city's population. The Asian and Hispanic communities together comprise
almost one-third of the total population of Houston. Similarly, the greater
Dallas metropolitan area has a growing Asian community of approximately 80,000
and a significant Hispanic population of approximately 400,000 which constitute,
in the aggregate, approximately one-quarter of the total population of Dallas.

While many of the Company's competitors either fail to recognize the
cultural distinctions among various ethnic groups or focus on only one isolated
group, management of the Company is acutely aware of and understands the unique
cultural nuances of each community that it serves. Multi-ethnic customers

11
<PAGE>
require a special level of understanding from their banker, whether it be the
specific characteristics of the businesses they operate or the native dialect in
which they converse. In order to better serve its customers, the Company
recruits bilingual and multilingual employees, publishes Company literature in
four languages (English, Spanish, Vietnamese and Chinese) and celebrates
cultural holidays such as Chinese New Year and Cinco de Mayo at its branches. In
addition, the active involvement of directors and officers in various ethnic
civic organizations allows management to better understand and respond to the
needs of each community that it serves. Management believes that each ethnic
group has its own unique cultural characteristics and tailors its products and
services to best serve each group. For example, the Company offers deposit
products that appeal to the unique saving philosophies of various ethnic groups.
The Company believes that this awareness, personalized service and a broad array
of products gives it a distinct competitive advantage in its chosen market
areas.

BUSINESS

In connection with the Company's multi-ethnic approach to community banking,
the Company offers products designed to appeal to its customers and further
enhance profitability. The Company believes that it has developed a reputation
as the premier provider of financial products and services to small and
medium-sized businesses and consumers located in the Asian and Hispanic
communities that it serves. Each of its lines of business is an outgrowth of the
Company's expertise in meeting the particular needs of its customers. The
Company's principal lines of business are the following:

COMMERCIAL AND INDUSTRIAL LOANS. The primary lending focus of the
Company is to small and medium-sized businesses in a wide variety of
industries. The Company's commercial lending emphasis includes loans to
wholesalers, manufacturers and business service companies. A broad range of
short and medium-term commercial lending products are made available to
businesses 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 June 30,
1998, the Company's commercial and industrial loan portfolio totaled $220.7
million or 59.6% of the gross loan portfolio. At that date, the Company had
a concentration of loans to hotels and motels of $55.9 million, of which
$55.2 million was included in the commercial and industrial portfolio. Hotel
and motel lending was originally targeted by the Company because of
management's particular expertise in this industry and a perception that it
was an under-served market. More recently, the Company has decreased its
emphasis in hotel and motel lending in order to further diversify its
portfolio.

COMMERCIAL MORTGAGE LOANS. The Company makes commercial mortgage loans
to finance the purchase of real property, which generally consists of
developed real estate. The Company's commercial mortgage loans are secured
by first liens on real estate, 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. As of June 30, 1998, the Company had a commercial mortgage
portfolio of $93.7 million.

CONSTRUCTION LOANS. The Company makes loans to finance the construction
of residential and non-residential properties. The substantial majority of
the Company's residential mortgage loans are for single-family dwellings
which are pre-sold or are under earnest money contract. The Company also
originates loans to finance the construction of commercial properties such
as multi-family, office, industrial, warehouse and retail centers. As of
June 30, 1998, the Company had a real estate construction portfolio of $22.6
million, of which $12.6 million was residential and $10.0 million was
commercial.

RESIDENTIAL MORTGAGE BROKERAGE AND LENDING. The Company uses its
existing branch network to offer a complete line of single-family
residential mortgage products. The Company solicits and processes
residential mortgage loans which are pre-sold to and underwritten by third
party mortgage companies. The Company also makes five to seven year balloon
residential mortgage loans with a 15 year amortization to its existing
customers on a select basis. At June 30, 1998, the Company's residential
mortgage portfolio totaled $12.6 million.

12
<PAGE>
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 mortgage
portfolios. As a Preferred Lender under the federally guaranteed SBA lending
program, the Company's preapproved 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
with servicing retained. The Company specializes in SBA loans to
minority-owned businesses. Over the last six years, the Company has
originated over $100.0 million in SBA guaranteed loans. As of June 30, 1998,
the Company had $33.3 million in the retained portion of SBA loans,
approximately $14.3 million of which was guaranteed by the SBA. For each of
the last five years, the Company has been the second largest SBA loan
originator in Houston in terms of dollar volume. Another source of
government guaranteed lending is Business & Industrial loans ("B&I Loans")
which are secured by the U.S. Department of Agriculture and are available to
borrowers in areas with a population of less than 50,000. The Company also
offers guaranteed loans through the Overseas Chinese Community Guaranty Fund
("OCCGF") which is sponsored by the government of Taiwan.

FACTORING. In 1994, the Company established an accounts receivable
factoring subsidiary, Advantage, to provide financing to small and
medium-sized businesses that have accounts receivable from predominantly
Fortune 1000 companies. Advantage's volume of purchases has grown steadily
since 1995, its first full year of operations, from $14.5 million in
short-term (usually 30 day) accounts receivable to $51.3 million during
1997, an increase of 253.8%. Purchased receivables through the first six
months of 1998 totaled $38.0 million. At June 30, 1998, factored receivables
outstanding totaled $10.8 million, compared with $2.1 million at December
31, 1995. In addition to enhancing profitability, many of the customers
obtained through these efforts have established more traditional banking
relationships with the Company.

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. In 1998, the Company was named Small Business Bank
of the Year by the Ex-Im Bank, and it was the largest Ex-Im Bank producer in
the State of Texas. At June 30, 1998, the Company's aggregate trade finance
portfolio commitments totaled approximately $8.0 million.

The Company offers a wide variety of loan and deposit products and services
to retail customers through its branch network in Houston and Dallas. Loans to
retail customers include residential mortgage loans, residential construction
loans, automobile loans, lines of credit and other personal loans. Retail
deposit products and services include checking and savings accounts, money
market accounts, time deposits, ATM cards, debit cards and on-line banking.

13
<PAGE>
FACILITIES

The Company conducts business at 11 full-service banking locations and one
loan production office. The following table sets forth specific information on
each such location. The Company's headquarters are located at 9600 Bellaire
Boulevard, Suite 252, Houston, Texas.

<TABLE>
<CAPTION>
DEPOSITS
LOCATION AT JUNE 30, 1998 DATE OPENED
- -------------------------------------------------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Houston Area:
Bellaire Blvd. ................................. $195,696 1987
East............................................ 84,022 1989
Galleria........................................ 81,041 1991
Chinatown....................................... 23,807 1993
Sugar Land...................................... 28,553 1995
Harwin.......................................... 16,323 1996
Clear Lake...................................... 13,322 1996
Veterans Memorial............................... 7,959 1997
Milam........................................... 5,632 1998
Dallas Area:
Richardson...................................... 30,462 1996
Harry Hines (1)................................. 210 1998
Garland (2)..................................... N/A 1999
New Orleans (3)................................... N/A 1996
</TABLE>

- ---------

(1) Opened in June of 1998.

(2) Scheduled for opening in the first quarter of 1999.

(3) Indicates loan production office.

COMPETITION

The banking business is highly competitive, and the profitability of the
Company depends principally on the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes with
other commercial banks, savings banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms, asset-based non-bank lenders and certain other
non-financial entities, including retail stores which may maintain their own
credit programs and certain governmental organizations which may offer more
favorable financing than the Company. The Company has been able to compete
effectively with other financial institutions by emphasizing customer service,
technology and local office decision-making; by establishing long-term customer
relationships and building customer loyalty; and by providing products and
services designed to address the specific needs of its customers. See "Risk
Factors--Competition."

EMPLOYEES

As of June 30, 1998, the Company had 255 full-time equivalent employees, 35
of whom were officers of the Bank classified as vice president or above. The
Company considers its relations with employees to be excellent.

LEGAL PROCEEDINGS

The Company and the Bank from time to time are parties to or otherwise
involved in legal proceedings arising in the normal course of business.
Management does not believe that there is any pending or threatened proceeding
against the Company or the Bank which, if determined adversely, would

14
<PAGE>
have a material effect on the business, results of operations or financial
position of the Company or the Bank.

USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering (based upon
the initial public offering price of $11.00 per share, the midpoint of the
estimated offering range), after deducting the underwriting discount and
estimated expenses, are estimated to be approximately $16.0 million, or $18.5
million if the Underwriter's over-allotment option is fully exercised.

The Company intends to use approximately $4.0 million of the net proceeds to
increase the capital of the Bank and the remainder for general corporate
purposes, including the support of anticipated balance sheet growth in the
Company's current market and for possible market expansions and acquisitions.

Pending the application of the net proceeds, the Company intends to invest
such proceeds in short-term, interest-bearing securities, certificates of
deposit or guaranteed obligations of the United States of America.

DIVIDEND POLICY

The only cash dividend ever paid by the Company was a $0.125 per share
dividend in 1994. The Company anticipates paying quarterly dividends aggregating
$0.24 per share per annum beginning in the fourth quarter of 1998. There is no
assurance, however, that the Company will pay dividends in the future.

For a foreseeable period of time, the principal source of cash revenues to
the Company will be dividends paid by the Bank with respect to the Bank's
capital stock. There are certain restrictions on the payment of such dividends
imposed by federal banking laws, regulations and authorities. Until capital
surplus equals or exceeds capital, a national bank must transfer to surplus 10%
of its net income for the preceding four quarters in the case of an annual
dividend or 10% of its net income for the preceding two quarters in the case of
a quarterly or semiannual dividend. The Bank's capital surplus exceeds its
capital stock. Without prior approval, a national bank may not declare a
dividend if the total amount of all dividends, declared by the bank in any
calendar year exceeds the total of the bank's retained net income for the
current year and retained net income for the preceding two years. As of June 30,
1998, an aggregate of approximately $7.5 million was available for payment of
dividends by the Bank to the Company under applicable restrictions, without
regulatory approval. Regulatory authorities could impose administratively
stricter limitations on the ability of the Bank to pay dividends to the Company
if such limits were deemed appropriate to preserve certain capital adequacy
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Resources" and "Supervision and
Regulation--The Bank."

In the future, the declaration and payment of dividends on the Common Stock
will depend upon the earnings and financial condition of the Company, liquidity
and capital requirements, the general economic and regulatory climate, the
Company's ability to service any equity or debt obligations senior to the Common
Stock and other factors deemed relevant by the Company's Board of Directors. See
"Supervision and Regulation" and "Description of Securities of the Company."

DILUTION

As of June 30, 1998, the tangible book value of the Common Stock was $6.02
per share. "Tangible book value per share" represents the amount of total
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of 1,600,000
shares of Common Stock offered hereby (after deducting the underwriting discount
and other estimated offering expenses to be paid by the Company), the pro forma
tangible book value of the Company as of June 30, 1998 would have been $6.90 per
share. This represents an immediate increase in

15
<PAGE>
net tangible book value of $0.88 per share to current shareholders and an
immediate dilution of $4.10 per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C>
Assumed price to public (the midpoint of the estimated offering
range)............................................................ $ 11.00
---------
Tangible book value per share before Offering..................... 6.02
Increase per share attributable to new investors.................. 0.88
---------
Pro forma tangible book value per share after Offering.............. 6.90
---------
Dilution to new investors........................................... $ 4.10
---------
---------
</TABLE>

The foregoing computations do not take into account the possible exercise of
outstanding stock options granted under the Company's stock option plans or the
possible issuance of up to an additional 240,000 shares of Common Stock to new
investors pursuant to the exercise of an option granted by the Company to the
Underwriter solely to cover over-allotments, if any, in connection with the
Offering. See "Underwriting." Options to purchase a total of 120,000 shares of
Common Stock were outstanding under the Company's stock option plans as of the
date of this Prospectus, all of which were exercisable at a price of $11.00 per
share. If the shares subject to such outstanding options under the Company's
stock option plans were included in the foregoing calculations, further dilution
to new shareholders would be incurred.

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of June 30, 1998, and as adjusted to give effect to the sale by the
Company of 1,600,000 shares of Common Stock offered hereby, at a per share price
of $11.00 (the midpoint of the estimated offering range), less the underwriting
discount and other estimated offering expenses to be paid by the Company. See
"Use of Proceeds."

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' Equity:
Preferred Stock, $1 par value; 2,000,000 shares authorized, none of which are issued and
outstanding;.......................................................................... $ -- $ --
Common Stock, $1 par value; 20,000,000 shares authorized; 5,654,560 shares issued and
outstanding, 7,254,560 shares issued and outstanding, as adjusted(1).................. 5,655 7,255
Additional paid-in-capital.............................................................. 12,848 27,266
Retained earnings....................................................................... 14,816 14,816
Accumulated other comprehensive income.................................................. 720 720
--------- -----------
Total shareholders' equity............................................................ $ 34,039 $ 50,057
--------- -----------
--------- -----------
</TABLE>

- ---------

(1) Does not include 120,000 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's stock option plans.

16
<PAGE>
NATURE OF THE TRADING MARKET

Prior to the Offering, there has been no public market for the shares of
Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Offering or that if such a market develops,
investors in the Common Stock will be able to resell their shares at or above
the initial public offering price. The Underwriter has advised the Company that
it intends to make a market in the Common Stock as long as the volume of trading
activity in the Common Stock and certain other market making conditions justify
doing so. Nonetheless, there can be no assurance that an active public market
will develop or be sustained after the Offering or that if such a market
develops, investors in the Common Stock will be able to resell their shares at
or above the initial public offering price. Making a market involves maintaining
bid and asked quotations for the Common Stock and being available as principal
to effect transactions in reasonable quantities at those quoted prices, subject
to various securities laws and other regulatory requirements. A public trading
market having the desired characteristics of depth, liquidity and orderliness
depends upon the presence in the marketplace of willing buyers and sellers of
the Common Stock at any given time, which presence is dependent upon the
individual decisions of investors over which neither the Company nor any market
maker has any control. See "Risk Factors--No Prior Trading Market."

The initial public offering price of the shares of Common Stock will be
determined by negotiations between the Company and the Underwriter and will not
necessarily bear any relationship to the Company's book value, past operating
results, financial condition or other established criteria of value and may not
be indicative of the market price of the Common Stock after the Offering. Among
the factors considered in such negotiations will be prevailing market and
general economic conditions, the market capitalizations, trading histories and
performance of other traded companies that the Company and the Underwriter
believe to be comparable to the Company, the results of operations of the
Company in recent periods, the current financial position of the Company and
estimates of the business potential of the Company. Additionally, consideration
will be given to the general status of the securities market, the market
conditions for new issues of securities and the demand for securities of
comparable companies at the time the Offering is made. See "Underwriting" for
information relating to the method of determining the initial public offering
price. An application has been made to have the shares of Common Stock approved
for quotation on the Nasdaq/National Market under the symbol MCBI.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following Selected Consolidated Financial Data of the Company should be
read in conjunction with the Consolidated Financial Statements of the Company,
the information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
elsewhere in this Prospectus. The selected historical consolidated financial
data as of and for each of the five years in the period ended December 31, 1997
are derived from the Company's Consolidated Financial Statements which have been
audited by PricewaterhouseCoopers LLP, independent accountants. Certain prior
year amounts have been reclassified to conform with the 1998 presentation. The
selected historical consolidated financial data as of and for the six months
ended June 30, 1998 and June 30, 1997 have not been audited but, in the opinion
of management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results of operations that may be expected for
the year ended December 31, 1998, or for any future periods.

<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................... $ 23,319 $ 19,411 $ 41,155 $ 31,523 $ 23,065 $ 15,643 $ 13,343
Interest expense.................. 10,009 8,548 18,138 13,927 9,640 5,155 4,130
--------- --------- --------- --------- --------- --------- ---------
Net interest income............. 13,310 10,863 23,017 17,596 13,425 10,488 9,213
Provision for loan losses......... 1,889 964 3,350 2,118 792 422 557
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses..... 11,421 9,899 19,667 15,478 12,633 10,066 8,656
Noninterest income................ 2,507 1,966 4,391 3,446 2,903 3,312 3,681
Noninterest expense............... 9,887 8,780 18,096 16,102 11,845 9,978 9,520
--------- --------- --------- --------- --------- --------- ---------
Net income before taxes......... 4,041 3,085 5,962 2,822 3,691 3,400 2,817
Provision for income taxes........ 1,228 901 1,794 809 1,091 895 798
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 2,813 $ 2,184 $ 4,168 $ 2,013 $ 2,600 $ 2,505 $ 2,019
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net income:
Basic........................... $ 0.50 $ 0.39 $ 0.75 $ 0.38 $ 0.52 $ 0.54 $ 0.45
Diluted......................... 0.50 0.39 0.74 0.37 0.51 0.53 0.44
Book value........................ 6.02 5.12 5.49 4.73 4.38 3.99 3.77
Tangible book value............... 6.02 5.12 5.49 4.73 4.38 3.99 3.77
Cash dividends.................... -- -- -- -- -- 0.125 --
Weighted average shares
outstanding (in thousands):
Basic........................... 5,655 5,585 5,581 5,364 5,015 4,658 4,534
Diluted......................... 5,655 5,655 5,616 5,444 5,104 4,764 4,641

BALANCE SHEET DATA:
Total assets...................... $ 527,624 $ 468,758 $ 505,051 $ 426,987 $ 322,799 $ 231,205 $ 191,491
Securities........................ 107,589 117,697 112,624 103,680 110,761 92,399 58,683
Total loans....................... 366,361 303,430 348,910 280,597 177,206 125,769 116,311
Allowance for loan losses......... 5,395 2,624 3,569 2,141 1,612 1,264 1,345
Total deposits.................... 487,027 414,456 445,859 381,289 285,153 197,135 162,768
Total shareholders' equity........ 34,039 28,932 30,506 25,398 23,519 18,595 17,577
</TABLE>

18
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET DATA:
Total assets...................... $ 520,989 $ 447,246 $ 469,097 $ 373,697 $ 271,087 $ 207,427 $ 185,583
Securities........................ 112,073 108,576 113,250 115,224 99,398 70,919 54,659
Loans............................. 353,464 295,440 310,781 223,514 146,210 118,762 108,929
Allowance for loan losses......... 4,336 2,448 2,722 1,869 1,442 1,355 1,356
Deposits.......................... 471,512 398,921 416,895 333,355 233,749 180,246 163,136
Shareholders' equity.............. 32,051 27,122 28,369 24,090 21,561 16,993 16,157

PERFORMANCE RATIOS(1):
Return on average assets.......... 1.09% 0.98% 0.89% 0.54% 0.96% 1.21% 1.09%
Return on average equity.......... 17.70 16.24 14.69 8.36 12.06 14.74 12.49
Net interest margin............... 5.46 5.21 5.22 5.02 5.27 5.42 5.44
Efficiency ratio(2)............... 62.51 68.86 66.48 76.73 72.82 72.22 75.04

ASSET QUALITY RATIOS(3):
Nonperforming assets to total
loans and other real estate..... 1.39% 1.53% 0.94% 0.82% 1.01% 1.22% 2.29%
Nonperforming assets to total
assets.......................... 0.96 1.00 0.65 0.54 0.56 0.67 1.41
Net loan charge-offs to average
loans........................... 0.02 0.16 0.62 0.71 0.30 0.42 0.54
Allowance for loan losses to total
loans........................... 1.47 0.86 1.02 0.76 0.91 1.01 1.16
Allowance for loan losses to
nonperforming loans(4).......... 108.99 100.69 134.02 135.42 127.53 131.26 111.99

CAPITAL RATIOS(3):
Leverage ratio.................... 6.34% 6.17% 5.92% 6.04% 7.30% 8.63% 8.96%
Average shareholders' equity to
average total assets............ 6.15 6.06 6.05 6.45 7.95 8.19 8.71
Tier 1 risk-based capital ratio... 8.71 9.00 8.45 8.69 10.65 12.82 13.16
Total risk-based capital ratio.... 10.12 9.83 9.46 9.44 11.39 13.66 14.18
</TABLE>

- ----------

(1) All interim periods have been annualized.

(2) Calculated by dividing total noninterest expense by net interest income plus
noninterest income, excluding net securities gains and losses.

(3) At period end, except net loan charge-offs to average loans and average
shareholders' equity to average total assets.

(4) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's balance
sheets and statements of operations. This section should be read in conjunction
with the Company's Consolidated Financial Statements and accompanying notes and
other detailed information appearing elsewhere in this Prospectus.

FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997

OVERVIEW

Net income for the six months ended June 30, 1998 was $2.8 million, an
increase of $629,000 or 28.8% over net income for the six months ended June 30,
1997. Net income per diluted common share was $0.50 for the six months ended
June 30, 1998 compared with $0.39 for the six months ended June 30, 1997, an
increase of 28.2%. The increase in net income reflected higher net interest
income, which was driven by growth in interest-earning assets, primarily from
strong internal loan growth. Return on average assets and return on average
equity were 1.09% and 17.70%, respectively, for the six months ended June 30,
1998 compared with 0.98% and 16.24%, respectively, for the same time period in
1997.

Total assets were $527.6 million at June 30, 1998, an increase of $22.5
million or 4.5% over total assets at December 31, 1997. In 1998, the Company
opened two new branches which accounted for $6.1 million or 27.0% of the $22.5
million or 4.5% growth in total assets for the six month period. When compared
with total deposits at December 31, 1997 of $445.9 million, total deposits of
$487.0 million at June 30, 1998 reflect deposit growth of $41.1 million or 9.2%.
During this six month period, noninterest-bearing deposits grew $8.9 million or
11.9% while interest-bearing deposits grew $32.2 million or 8.7%. Total
shareholders' equity was $34.0 million at June 30, 1998, representing an
increase of $3.5 million or 11.5% over total shareholders' equity of $30.5
million at December 31, 1997.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income represents the amount by which interest income earned on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
earnings. Interest rate fluctuations, as well as changes in the volume and type
of earning assets and liabilities, combine to affect net interest income.

Net interest income for the six months ended June 30, 1998 was $13.3 million
compared with $10.9 million for the six months ended June 30, 1997, an increase
of $2.4 million or 22.0%. Net interest income increased as a result of higher
interest-earning assets derived primarily from loan growth. Average
interest-earning assets increased to $491.4 million for the six months ended
June 30, 1998 from $420.1 million for the six months ended June 30, 1997, an
increase of $71.3 million or 17.0%. Average loans increased to $353.5 million
for the six months ended June 30, 1998 from $295.4 million for the six months
ended June 30, 1997, an increase of $58.1 million or 19.7%. Substantially all of
this increase resulted from growth in commercial and industrial loans. The
increase in interest income was partially offset by higher expense on
interest-bearing deposits. Average interest-bearing deposits increased to $394.9
million for the six months ended June 30, 1998 from $339.5 million for the six
months ended June 30, 1997, an increase of $55.4 million or 16.3%.

Interest expense increased $1.5 million to $10.0 million at June 30, 1998
compared with $8.5 million at June 30, 1997. The increase was primarily the
result of growth in average time deposits by $37.5 million to $278.7 million at
June 30, 1998. The Company views time deposits, which are the primary tools used
to fund the Company's loan growth, as a stable means of supporting such growth.
Unlike other financial

20
<PAGE>
institutions, where large time deposits are often considered volatile, the
Company believes that based on its historical experience its large time deposits
have core-type characteristics. The Company anticipates that this source of
funding will continue to sustain a large part of the Company's asset growth in
the future.

The Company posted net interest margins of 5.46% and 5.21% and net interest
spreads of 4.60% and 4.46% for the periods ended June 30, 1998 and June 30,
1997, respectively. The increase in the net interest margin from the first six
months of 1997 to the first six months of 1998 reflects a 25 basis point
increase in the yield on average interest-earning assets, which was partially
offset by an 11 basis point increase in the cost of interest-bearing
liabilities. The yield on average interest-earning assets increased to 9.57% for
the six months ended June 30, 1998 from 9.32% for the six months ended June 30,
1997. The increase in the yield on average interest-earning assets was due
primarily to growth in commercial and industrial loans. The cost of
interest-bearing liabilities increased to 4.97% for the six months ended June
30, 1998 from 4.86% for the six months ended June 30, 1997. This increase was
due primarily to the higher cost of time deposits. Average time deposit rates
paid increased from 5.46% for the first six months of 1997 to 5.57% for the same
period of 1998. For the same periods, average volume increased from $241.1
million to $278.7 million, an increase of 15.6%.

21
<PAGE>
The following table presents the total dollar amount of average balances,
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and annualized rates. No tax-equivalent adjustments
were made and all average balances are average daily balances. Nonaccruing loans
have been included in the tables as loans carrying a zero yield.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD/ RATE BALANCE PAID YIELD/ RATE
----------- --------- ----------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans...................................... $ 353,464 $ 19,014 10.85% $ 295,440 $ 15,541 10.61%
Taxable securities......................... 94,522 3,053 6.51 91,147 2,920 6.46
Tax-exempt securities...................... 17,551 478 5.49 17,429 483 5.59
Federal funds sold and other temporary
investments.............................. 25,892 774 6.03 16.079 467 5.86
----------- --------- ----------- ---------
Total interest-earning assets............ 491,429 23,319 9.57% 420,095 19,411 9.32%
--------- ---------
Less allowance for loan losses............... (4,336) (2,448)
----------- -----------
Total interest-earning assets, net of
allowance for loan losses.................. 487,093 417,647
Nonearning assets............................ 33,896 29,599
----------- -----------
Total assets........................... $ 520,989 $ 447,246
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits........... $ 29,083 $ 375 2.60% $ 25,768 $ 333 2.61%
Savings and money market accounts.......... 87,086 1,602 3.71 72,633 1,263 3.51
Time deposits.............................. 278,685 7,704 5.57 241,145 6,534 5.46
Federal funds purchased and securities sold
under repurchase agreements.............. 552 16 5.85 1,492 40 5.41
Other borrowings........................... 11,002 312 5.72 13,315 378 5.72
----------- --------- ----------- ---------
Total interest-bearing liabilities..... 406,408 10,009 4.97% 354,353 8,548 4.86%
--------- ---------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits........ 76,658 59,375
Other liabilities.......................... 5,872 6,396
----------- -----------
Total liabilities...................... 488,938 420,124
Shareholders' equity......................... 32,051 27,122
----------- -----------
Total liabilities and shareholders'
equity............................... $ 520,989 $ 447,246
----------- -----------
----------- -----------
Net interest income.......................... $ 13,310 $ 10,863
--------- ---------
--------- ---------
Net interest spread.......................... 4.60% 4.46%
----- -----
----- -----
Net interest margin.......................... 5.46% 5.21%
----- -----
----- -----
</TABLE>

22
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to higher outstanding balances and changes in interest rates.
For purposes of this table, changes attributable to both rate and volume have
been allocated to rate.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1998 VS. 1997
-------------------------------
INCREASE (DECREASE)
DUE TO
--------------------
VOLUME RATE TOTAL
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans............................................................ $ 3,053 $ 420 $ 3,473
Securities....................................................... 110 18 128
Federal funds sold and other temporary investments............... 285 22 307
--------- --------- ---------
Total increase in interest income.............................. 3,448 460 3,908
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits................................. 43 (1) 42
Savings and money market accounts................................ 252 87 339
Time deposits.................................................... 1,016 154 1,170
Federal funds purchased.......................................... (25) 1 (24)
Other borrowings................................................. (66) -- (66)
--------- --------- ---------
Total increase in interest expense............................. 1,220 241 1,461
--------- --------- ---------
Increase in net interest income.................................... $ 2,228 $ 219 $ 2,447
--------- --------- ---------
--------- --------- ---------
</TABLE>

PROVISION FOR LOAN LOSSES

In determining the adequacy of the allowance for loan losses, the Company
considers the risk classification or delinquency status of loans and other
factors, such as collateral value, portfolio composition, trends in economic
conditions and the financial strength of borrowers. Management establishes
specific allowances for loans which management believes require reserves greater
than those allocated according to their classification or delinquent status. The
provision for loan losses increased to $1.9 million for the six months ended
June 30, 1998 from $964,000 for the same time period in 1997, an increase of
$925,000 or 96.0%. The increased provision resulted from significant growth in
the loan portfolio. See "--Financial Condition--Allowance for Loan Losses."

NONINTEREST INCOME

Noninterest income is an important source of revenue for financial
institutions. The Company's primary source of noninterest income is service
charges on deposit accounts and other banking service-related fees. Noninterest
income for the six months ended June 30, 1998 was $2.5 million, an increase of
$541,000 or 27.5% from $2.0 million for the same period in 1997. It is the
Company's goal to continue to

23
<PAGE>
increase its level of noninterest income relative to total income by continually
considering additional sources of revenue. The following table presents the
major categories of noninterest income:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts........................................ $ 1,469 $ 1,059
Other loan-related fees.................................................... 756 593
Letters of credit commissions and fees..................................... 182 167
Gain on sale of investment securities, net................................. -- 78
Other noninterest income................................................... 100 69
--------- ---------
Total noninterest income................................................. $ 2,507 $ 1,966
--------- ---------
--------- ---------
</TABLE>

The increase in service charges on deposit accounts and total noninterest
income for the first six months of 1998 compared with the first six months of
1997 resulted primarily from increased insufficient funds charges as well as
growth in deposit transaction accounts. The increase in these charges is the
result of higher volume combined with an improvement in monitoring the accounts
subject to service charges.

NONINTEREST EXPENSE

In the six month period ended June 30, 1998, noninterest expense increased
$1.1 million or 12.5% to $9.9 million from $8.8 million for the period ended
June 30, 1997. The Company's efficiency ratio, calculated by dividing total
noninterest expense by the sum of net interest income plus noninterest income
excluding securities gains and losses, was 62.51% for the six months ended June
30, 1998 and 68.86% for the six months ended June 30, 1997. The improvement
reflected an increase in net interest income that was partially offset by
additional expenses resulting from the establishment of two new branches in the
second half of 1997. Management believes that the Company's efficiency ratio
will continue to improve as the newly established branches grow and achieve
economies of scale. The following table presents the major categories of
noninterest expense:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits......................................... $ 4,746 $ 4,313
Non-staff expenses:
Occupancy.............................................................. 2,279 1,846
Other real estate, net................................................. 166 178
Data processing........................................................ 290 206
Professional fees...................................................... 211 225
Advertising............................................................ 175 176
Consultants/contract labor............................................. 246 227
Director compensation.................................................. 171 180
Printing and supplies.................................................. 209 168
Telecommunications..................................................... 198 171
Other noninterest expense.............................................. 1,196 1,090
--------- ---------
Total non-staff expenses............................................. 5,141 4,467
--------- ---------
Total noninterest expense............................................ $ 9,887 $ 8,780
--------- ---------
--------- ---------
</TABLE>

Employee compensation and benefits expense for the six months ended June 30,
1998 was $4.7 million, an increase of $433,000 or 10.0% from $4.3 million in the
same period of 1997. The increase was

24
<PAGE>
principally due to additional staff associated with the new branches. Total
full-time equivalent employees at June 30, 1998 increased to 255 from 226 at
June 30, 1997.

Non-staff expenses increased to $5.1 million for the six month period ended
June 30, 1998 from $4.5 million for the same period in 1997, an increase of
$674,000 or 15.0%. This increase was largely due to increased occupancy expenses
relating to the opening of new branches.

INCOME TAXES

Income tax expense includes the regular federal income tax at the statutory
rate plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of non-deductible interest expense and
the amount of other non-deductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers' salaries, less interest income on federal securities. The income tax
component of the Texas franchise tax was $96,000 in the first six months of 1998
and $66,000 in the first six months of 1997. During the six months ended June
30, 1998, income tax expense was $1.2 million compared with $901,000 for the six
months ended June 30, 1997. The effective tax rates for the six months ended
June 30, 1998 and June 30, 1997 were 30.4% and 29.2%, respectively.

IMPACT OF INFLATION

The effects of inflation on the local economy and on the Company's operating
results have been relatively modest for the past several years. Since
substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The Company tries to
control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "--Financial
Condition--Interest Rate Sensitivity and Liquidity" below.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE
INCOME which establishes standards for reporting and displaying comprehensive
income and its components in an entity's financial statements. This statement
requires that an enterprise (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income as a separate component in the equity section of a
statement of financial position. This statement is effective for reporting
periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of Statement No. 130 had no impact on the Company's earnings,
liquidity or capital resources.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
Statement No. 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
for related disclosures about products and services, geographic areas and major
customers. This statement is effective for reporting periods beginning after
December 15, 1997. The Company is currently reviewing the application of
Statement No. 131 and has not determined all segments it may report in the
future.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"), which will become
effective for financial statements for the calendar year 1999, with early
adoption encouraged. SOP 98-1 requires the capitalization of eligible costs of
specified activities related to computer

25
<PAGE>
software developed or obtained for internal use. The Company is assessing how
the capitalization of these costs, which are currently expensed by the Company,
will affect its earnings, liquidity, or capital resources. Management does not
believe the impact of adoption will be material.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Statement
No. 133 establishes a new model for accounting for derivatives and hedging
activities. It requires the recognition of all derivatives in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, a special hedge accounting should only be provided for transactions
that meet certain specified criteria. This statement is effective for reporting
periods beginning after June 15, 1999. The adoption of Statement No. 133 is not
expected to have a material impact on the financial statements.

FINANCIAL CONDITION

LOAN PORTFOLIO

Total loans aggregated $366.4 million at June 30, 1998, an increase of $63.0
million or 20.8% from $303.4 million at June 30, 1997. This increase is
primarily attributable to increases in commercial and industrial loans. The
following table summarizes the loan portfolio of the Company by type of loan:

<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------------------
1998 1997
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............................................. $ 220,725 59.58% $ 154,341 50.29%
Real estate mortgage
Residential......................................................... 12,599 3.40 11,062 3.61
Commercial.......................................................... 93,723 25.30 101,883 33.19
---------- --------- ---------- ---------
106,322 28.70 112,945 36.80
---------- --------- ---------- ---------
Real estate construction
Residential......................................................... 12,606 3.41 6,224 2.03
Commercial.......................................................... 10,011 2.70 16,459 5.36
---------- --------- ---------- ---------
22,617 6.11 22,683 7.39
---------- --------- ---------- ---------
Consumer and other.................................................... 10,001 2.70 11,356 3.70
Factored receivables.................................................. 10,780 2.91 5,599 1.82
---------- --------- ---------- ---------
Gross loans........................................................... 370,445 100.00% 306,924 100.00%
--------- ---------
--------- ---------
Less: unearned discounts, interest and deferred fees.................. (4,084) (3,494)
---------- ----------
Total loans......................................................... $ 366,361 $ 303,430
---------- ----------
---------- ----------
</TABLE>

Each of the following principal lines of business is an outgrowth of the
Company's expertise in meeting the particular needs of the small and
medium-sized businesses and consumers in Asian and Hispanic communities:

26
<PAGE>
projections. Commercial loans are generally secured by business assets, which
may include accounts receivable and inventory, certificates of deposit,
securities, real estate, guarantees or other collateral. The Company also
generally obtains personal guarantees from the principals of the business.
Working capital loans are primarily collateralized by short-term assets, whereas
term loans are primarily collateralized by long-term assets. Indigenous to
individuals in the Asian business community is the desire to own the building
and land which houses their businesses. Accordingly, while a loan may be
principally driven and classified by the type of business in place, real estate
is frequently the primary source of collateral. As of June 30, 1998,
approximately $135.0 million or 61.2% of the commercial and industrial loan
portfolio was secured by real estate. The Company continually monitors real
estate value trends and takes into consideration changes in market trends in its
underwriting standards. Commercial loans are generally for amounts between
$10,000 and $250,000, and as of June 30, 1998, the average commercial loan
amount was $153,000. As of June 30, 1998, the Company's commercial and
industrial loan portfolio totaled $220.7 million or 59.6% of the gross loan
portfolio. At that date, the Company had a concentration of loans to hotels and
motels of $55.9 million, of which $55.2 million was included in the commercial
and industrial loan portfolio. Hotel and motel lending was originally targeted
by the Company because of management's particular expertise in this industry and
a perception that it was an under-served market. More recently, the Company has
decreased its emphasis in hotel and motel lending in order to further diversify
its portfolio.

COMMERCIAL MORTGAGE LOANS. In addition to commercial loans, the Company
makes commercial mortgage loans to finance the purchase of real property, which
generally consists of developed real estate. The Company's commercial mortgage
loans are secured by first liens on real estate, 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. In underwriting commercial mortgage loans, consideration is
given to the property's historical cash flow, current and projected occupancy,
location and physical condition. The underwriting analysis also includes credit
checks, appraisals, environmental impact reports and a review of the financial
condition of the borrower. As of June 30, 1998, the Company had a commercial
mortgage portfolio of $93.7 million.

CONSTRUCTION LOANS. The Company makes loans to finance the construction of
residential and non-residential properties. The substantial majority of the
Company's residential mortgage loans are for single-family dwellings which are
pre-sold or are under earnest money contract. The Company also originates loans
to finance the construction of commercial properties such as multi-family,
office, industrial, warehouse and retail centers. As of June 30, 1998, the
Company had a real estate construction portfolio of $22.6 million, of which
$12.6 million was residential and $10.0 million was commercial.

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 specializes in
mortgages that conform with government sponsored programs, such as those offered
by the Federal National Mortgage Association ("FNMA") and the Houston Housing
Partnership. The residential mortgage products generally amortize over five to
15 years and usually have a maximum term of five years. The Company solicits and
processes these residential mortgage loans, which are then pre-sold to and
underwritten by third party mortgage companies. The volume of residential
mortgage loans processed by the Company and presold to third party mortgage
companies has increased from $12.0 million in 1997 to $16.5 million during the
first half of 1998. The Company also makes five to seven year balloon
residential mortgage loans with a 15 year amortization to its existing customers
on a select basis. At June 30, 1998, the Company's residential mortgage
portfolio totaled $12.6 million.

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 mortgage portfolio. As a
Preferred Lender under the federally guaranteed SBA lending program, the
Company's preapproved status allows it to quickly respond to customers' needs.
Under this program, the Company originates and funds SBA 7-A and 504 chapter
loans qualifying for

27
<PAGE>
federal guarantees of 75% to 90% of principal and accrued interest. Depending
upon prevailing market conditions, the Company may sell the guaranteed portion
of these loans into the secondary market with servicing retained. The Company
specializes in SBA loans to minority-owned businesses. Over the last six years,
the Company has originated over $100.0 million in SBA guaranteed loans. As of
June 30, 1998, the Company had $33.3 million in the retained portion of SBA
loans, approximately $14.3 million of which was guaranteed by the SBA. For each
of the last five years, the Company has been the second largest SBA loan
originator in Houston in terms of dollar volume. SBA loan originations for the
six month period ending June 30, 1998 were $17.7 million, an increase of $8.4
million from $9.3 million for the first six months of 1997. Another source of
government guaranteed lending is B&I Loans which are secured by the U.S.
Department of Agriculture and are available to borrowers in areas with a
population of less than 50,000. The Company also offers guaranteed loans through
the OCCGF, which is sponsored by the government of Taiwan.

FACTORING. In 1994, the Company established an accounts receivable
factoring subsidiary, Advantage, to provide financing to small and medium-sized
businesses that have accounts receivable from predominantly Fortune 1000
companies. In factoring receivables, Advantage relies heavily on the quality of
the client's accounts receivable and the financial strength of the client's
customers, who typically make their payments directly to a lockbox controlled by
Advantage. Advantage's clients are typically businesses that are experiencing
rapid growth and have an increased demand for working capital, usually with
annual sales between $1.0 million and $25.0 million. Advantage's volume of
purchases has grown steadily since 1995, its first full year of operations, from
$14.5 million in short-term (usually 30 day) accounts receivable to $51.3
million during 1997, an increase of 253.8%. Purchased receivables through the
first six months of 1998 totaled $38.0 million. At June 30, 1998, factored
receivables outstanding totaled $10.8 million, compared with $2.1 million at
December 31, 1995. In addition to enhancing profitability, many of the customers
obtained through these efforts have established more traditional banking
relationships with the Company.

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 Ex-Im Bank, an agency of the U.S. government which
provides guarantees for trade finance loans. In 1998, the Company was named
Small Business Bank of the Year by the Ex-Im Bank, and it was the largest Ex-Im
Bank producer in the State of Texas. At June 30, 1998, the Company's aggregate
trade finance portfolio commitments totaled approximately $8.0 million.

The Company offers a wide variety of loan products to retail customers
through its branch network in Houston and Dallas. Loans to retail customers
include residential mortgage loans, residential construction loans, automobile
loans, lines of credit and other personal loans. The terms and size of these
loans typically range from 12 to 60 months depending on the nature of the
collateral and the size of the loan.

Although the Company's legal loan limit is $5.9 million, the Company
generally does not make loans larger than $3.0 million. Loans are approved by
lending officers and the Directors Credit Committee pursuant to a lending
authorization schedule delegated by the Directors Credit Committee which is
based on each loan officer's credit experience and portfolio. Control systems
and procedures are in place to ensure all loans are approved in accordance with
credit policies.

28
<PAGE>
At June 30, 1998, the Company had gross loan concentrations (greater than
25% of capital) in the following industries:

<TABLE>
<CAPTION>
AS OF JUNE 30,
1998
------------------
(IN THOUSANDS)
<S> <C>
Hotels/motels............................................................. $ 55,887
Retail centers............................................................ 34,454
Restaurants............................................................... 29,991
Apartment buildings....................................................... 18,853
Convenience/gasoline stations............................................. 11,258
Grocery stores............................................................ 10,392
</TABLE>

The contractual maturity ranges of the commercial and industrial and real
estate portfolio and the amount of such loans with predetermined interest rates
and floating rates in each maturity range as of June 30, 1998 are summarized in
the following table:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------
AFTER
ONE YEAR ONE THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
--------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial........................................ $ 49,324 $ 121,030 $ 50,371 $ 220,725
Real estate mortgage
Residential.................................................... 1,008 5,649 5,942 12,599
Commercial..................................................... 15,705 68,489 9,529 93,723
Real estate construction
Residential.................................................... 8,231 4,375 -- 12,606
Commercial..................................................... 782 3,626 5,603 10,011
--------- ------------ ----------- ----------
Total........................................................ $ 75,050 $ 203,169 $ 71,445 $ 349,664
--------- ------------ ----------- ----------
--------- ------------ ----------- ----------

Loans with a predetermined interest rate......................... $ 25,514 $ 32,037 $ 10,654 $ 68,205
Loans with a floating interest rate.............................. 49,536 171,132 60,791 281,459
--------- ------------ ----------- ----------
Total........................................................ $ 75,050 $ 203,169 $ 71,445 $ 349,664
--------- ------------ ----------- ----------
--------- ------------ ----------- ----------
</TABLE>

NONPERFORMING ASSETS

The Company believes that it has procedures in place to maintain a high
quality loan portfolio. These procedures include the approval of lending
policies and underwriting guidelines by the Board of Directors, review by an
independent internal loan review department, quarterly review by an independent
outside loan review company, Directors Credit Committee approval for large
credit relationships and loan documentation procedures. The loan review
department reports credit risk grade changes on a monthly basis to management
and the Board of Directors. The Company performs monthly and quarterly
concentration analyses based on industries, collateral types, business lines,
large credit sizes and officer portfolio loads. There can be no assurance,
however, that the Company's loan portfolio will not become subject to increasing
pressures from deteriorating borrower credit due to general economic conditions.

The Company generally places a loan on nonaccrual status and ceases accruing
interest when, in the opinion of management, full payment of loan principal or
interest is in doubt. All loans past due 90 days are placed on nonaccrual status
unless the loan is both well-secured and in the process of collection. Cash
payments received while a loan is classified as nonaccrual are recorded as a
reduction of principal as long as significant doubt exists as to collection of
the principal. Otherwise, interest is recognized on a cash basis.

29
<PAGE>
In addition to nonaccrual loans, the Company evaluates on an ongoing basis
additional loans which are potential problem loans as to risk exposure in
determining the adequacy of the allowance for loan losses.

The Company updates appraisals on loans secured by real estate when loans
are renewed, prior to foreclosure and at other times as necessary, particularly
in problem loan situations. In instances where updated appraisals reflect
reduced collateral values, an evaluation of the borrower's overall financial
condition is made to determine the need, if any, for possible write downs or
appropriate additions to the allowance for loan losses. The Company records
other real estate at fair value at the time of acquisition, less estimated costs
to sell.

Nonperforming assets (nonaccrual loans, loans contractually past due 90 days
or more and other real estate loans and foreclosed properties) increased from
$4.7 million at June 30, 1997 to $5.1 million at June 30, 1998. The increase was
comprised of an increase in nonaccrual loans of $2.3 million partially off-set
by a $1.9 million decrease in other real estate. Nonaccrual loans increased
primarily due to four loans added in the first half of 1998 aggregating $4.6
million, partially offset by $2.3 million of nonaccrual loans that paid off.
Other real estate decreased significantly from $2.1 million to $136,000
primarily due to the sale of one asset with a book value of $1.5 million. The
Company had no restructured loans as of June 30, 1998 or June 30, 1997.

The following table presents information regarding nonperforming assets at
June 30, 1998 and June 30, 1997:

<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Nonaccrual loans...................................................... $ 4,950 $ 2,606
Other real estate..................................................... 136 2,076
--------- ---------
Total nonperforming assets.......................................... $ 5,086 $ 4,682
--------- ---------
--------- ---------
Nonperforming assets to total loans and other real estate............. 1.39% 1.53%
Nonperforming assets to total assets.................................. 0.96% 1.00%
</TABLE>

The Company would have recorded additional interest income of approximately
$127,000 in the first six months of 1998 on nonaccrual loans if the loans had
been current in accordance with original terms. At June 30, 1998, management was
not aware of any loans not currently classified as nonaccrual or 90 days past
due but which may be so classified in the near future because of concerns over
the borrower's ability to comply with repayment terms.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Management has established an allowance
for loan losses which it believes is adequate for estimated losses inherent in
the Company's loan portfolio. Based on an evaluation of the loan portfolio,
management presents a quarterly review of the allowance for loan losses to the
Company's Board of Directors, indicating any change in the allowance since the
last review and any recommendations as to adjustments in the allowance. In
making its evaluation, management considers the diversification by industry of
the Company's commercial loan portfolio, the effect of changes in the local real
estate market on collateral values, the results of recent regulatory
examinations, the effects on the loan portfolio of current economic indicators
and their probable impact on borrowers, the amount of charge-offs for the
period, the amount of nonperforming loans and related collateral security, the
evaluation of its loan portfolio by the loan review function and the annual
examination of the Company's financial statements by its independent
accountants. Charge-offs occur when loans are deemed to be uncollectible in
whole or in part.

30
<PAGE>
The Company follows a loan review program to evaluate the credit risk in the
loan portfolio. Through the loan review process, the Company maintains an
internally classified loan list which, along with the delinquency list of loans,
helps management assess the overall quality of the loan portfolio and the
adequacy of the allowance for loan losses. Loans classified as "substandard" are
those loans with clear and defined weaknesses such as a highly-leveraged
position, unfavorable financial ratios, uncertain repayment sources or poor
financial condition, which may jeopardize recoverability of the debt. Loans
classified as "doubtful" are those loans which have characteristics similar to
substandard loans but with an increased risk that a loss may occur, or at least
a portion of the loan may require a charge-off if liquidated at present.
Although loans classified as substandard do not duplicate loans classified as
doubtful, both substandard and doubtful loans include some loans that are
delinquent at least 30 days or on nonaccrual status. Loans classified as "loss"
are those loans which are in the process of being charged off.

In addition to the internally classified loan list and delinquency list of
loans, the Company maintains a separate "watch list" which further aids the
Company in monitoring loan portfolios. Watch list loans show warning elements
where the present status portrays one or more deficiencies that require
attention in the short term or where pertinent ratios of the loan account have
weakened to a point where more frequent monitoring is warranted. These loans do
not have all of the characteristics of a classified loan (substandard or
doubtful) but do show weakened elements compared with those of a satisfactory
credit. The Company reviews these loans to assist in assessing the adequacy of
the allowance for loan losses.

In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. The Company then charges to operations a provision for loan
losses to maintain the allowance for loan losses at an adequate level determined
by the foregoing methodology.

For the six months ended June 30, 1998, net loan charge-offs totaled $63,000
or 0.02% of average loans compared with $481,000 or 0.16% of average loans for
the six months ended June 30, 1997. During the six months ended June 30, 1998,
the Company recorded a provision for loan losses of $1.9 million compared with
$964,000 for the six months ended June 30, 1997. At June 30, 1998, the allowance
totaled $5.4 million, or 1.47% of total loans resulting in an allowance to
nonperforming loans of 108.99%.

Beginning in December 1996, in accordance with the AICPA's Audit and
Accounting Guide for Banks and Savings Institutions, the Company allocates the
allowance for loan losses according to management's assessments of risk inherent
in the portfolio.

31
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1998 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average loans outstanding......................... $353,464 $295,440
-------- --------
-------- --------
Total loans outstanding at end of period.......... $366,361 $303,430
-------- --------
-------- --------
Allowance for loan losses at beginning of
period.......................................... $ 3,569 $ 2,141
Provision for loan losses......................... 1,889 964
Charge-offs:
Commercial and industrial....................... (91) (198)
Real estate - mortgage.......................... (12) --
Real estate - construction...................... -- --
Consumer and other.............................. (68) (404)
-------- --------
Total charge-offs............................. (171) (602)
-------- --------
Recoveries:
Commercial and industrial....................... 64 103
Real estate - mortgage.......................... 33 --
Real estate - construction...................... -- --
Consumer and other.............................. 11 18
-------- --------
Total recoveries.............................. 108 121
-------- --------
Net loan charge-offs.............................. (63) (481)
-------- --------
Allowance for loan losses at end of period........ $ 5,395 $ 2,624
-------- --------
-------- --------
Ratio of allowance to end of period total loans... 1.47% 0.86%
Ratio of net loan charge-offs to average loans.... 0.02 0.16
Ratio of allowance to end of period nonperforming
loans........................................... 108.99 100.69
</TABLE>

The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future losses may occur. The total allowance is
available to absorb losses from any segment of the credit portfolio.

<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT GROSS LOANS AMOUNT GROSS LOANS
--------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable to:
Commercial and industrial........................................ $ 3,277 59.58% $ 1,284 50.29%
Real estate - mortgage........................................... 891 28.70 672 36.80
Real estate - construction....................................... 127 6.11 113 7.39
Consumer and other............................................... 393 2.70 290 3.70
Factored receivables............................................. 407 2.91 250 1.82
Unallocated...................................................... 300 -- 15 --
--------- ------ --------- ------
Total allowance for loan losses................................ $ 5,395 100.00% $ 2,624 100.00%
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>

The Company believes that the allowance for loan losses at June 30, 1998 is
adequate to cover losses inherent in the portfolio as of such date. There can be
no assurance, however, that the Company will not sustain losses in future
periods which could be substantial in relation to the size of the allowance at
June 30, 1998.

32
<PAGE>
SECURITIES

The Company uses its securities portfolio primarily as a source of income
and secondarily as a source of liquidity. At June 30, 1998, investment
securities totaled $107.6 million, a decrease of $10.1 million from $117.7
million at June 30, 1997. Investment securities decreased as funds were
redeployed to support loan growth. At June 30, 1998, investment securities
represented 20.4% of total assets compared with 25.1% of total assets at June
30, 1997. The yield on the investment portfolio for the six months ended June
30, 1998 was 6.35% compared with a yield of 6.32% for the six months ended June
30, 1997.

The Company follows Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. At the date of
purchase, the Company is required to classify debt and equity securities into
one of three categories: held-to-maturity, trading or available-for-sale. At
each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held-to-maturity and measured
at amortized cost in the financial statements only if management has the
positive intent and ability to hold those securities to maturity. The Company
does not have a trading account. Investments not classified as either
held-to-maturity or trading are classified as available-for-sale and measured at
fair value in the financial statements with unrealized gains and losses
reported, net of tax, as a component of other comprehensive income in
shareholders' equity until realized.

The following table summarizes the contractual maturity of investment
securities at amortized cost (including federal funds sold and other temporary
investments) and their weighted average yields. No tax-equivalent adjustments
were made.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ----- ----------- ----- ----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities... $ -- --% $ 1,981 6.17% $ -- --% $ -- --%
U.S. Government agency
securities............... 127 5.90 6,937 6.61 24,031 6.30 53,445 6.61
Municipal securities....... -- -- 1,458 4.81 9,372 5.37 6,837 5.41
Federal funds sold......... 19,483 5.94 -- -- -- -- -- --
Temporary investments...... 4,002 7.44 -- -- -- -- -- --
Other securities........... 1,682 5.58 -- -- -- -- 529 5.90
----------- --- ----------- --- ----------- --- ----------- ---
Total securities......... $ 25,294 6.15% $ 10,376 6.27% $ 33,403 6.04% $ 60,811 6.47%
----------- --- ----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- --- ----------- ---

TOTAL
----------------------
AMOUNT YIELD
--------- -----

<S> <C> <C>
U.S. Treasury securities... $ 1,981 6.17%
U.S. Government agency
securities............... 84,540 6.52
Municipal securities....... 17,667 5.34
Federal funds sold......... 19,483 5.94
Temporary investments...... 4,002 7.44
Other securities........... 2,211 5.66
--------- ---
Total securities......... $ 129,884 6.28%
--------- ---
--------- ---
</TABLE>

The following table presents the amortized cost of securities classified as
available-for-sale and their approximate fair values at June 30, 1998:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................................... $ 1,981 $ 57 $ -- $ 2,038
U.S. Government agency securities.................................. 29,795 663 (25) 30,433
Municipal securities............................................... 10,298 496 (1) 10,793
Other securities................................................... 2,211 -- -- 2,211
----------- ----------- ----- ---------
Total securities................................................. $ 44,285 $ 1,216 $ (26) $ 45,475
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>

33
<PAGE>
The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values at June 30, 1998:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government agency securities.................................. $ 54,744 $ 781 $ (207) $ 55,318
Municipal securities............................................... 7,370 188 -- 7,558
----------- ----- ----- ---------
Total securities................................................. $ 62,114 $ 969 $ (207) $ 62,876
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>

U.S. Government agency securities include mortgage-backed securities which
have been developed by pooling a number of real estate mortgages and are
principally issued by federal agencies such as the FNMA and the Federal Home
Loan Mortgage Corporation. These securities are deemed to have high credit
ratings, and certain minimum levels of regular monthly cash flows of principal
and interest are guaranteed by the issuing agencies. Included in the Company's
mortgage-backed securities at June 30, 1998 were $1.8 million in agency-issued
collateral mortgage obligations.

At June 30, 1998, 91.6% of the mortgage-backed securities held by the
Company had final maturities of more than ten years. However, unlike U.S.
Treasury and U.S. Government agency securities, which have a lump sum payment at
maturity, mortgage-backed securities provide cash flows from regular principal
and interest payments and principal prepayments throughout the lives of the
securities. Mortgage-backed securities which are purchased at a premium will
generally suffer decreasing net yields as interest rates drop because homeowners
tend to refinance their mortgages. Thus, the premium paid must be amortized over
a shorter period. Therefore, securities purchased at a discount will obtain
higher net yields in a decreasing interest rate environment. As interest rates
rise, the opposite will generally be true. During a period of increasing
interest rates, fixed rate mortgage-backed securities do not tend to experience
heavy prepayments of principal and consequently, the average life of this
security will not be unduly shortened. Approximately $12.2 million of the
Company's mortgage-backed securities earn interest at floating rates and reprice
within one year, and accordingly are less susceptible to declines in value
should interest rates increase.

DERIVATIVES

At June 30 1998, the Company did not have any off-balance sheet derivative
contracts outstanding. However, the securities portfolio did contain some
securities with options callable by the issuers.

DEPOSITS

The Company's lending and investing activities are funded principally by
deposits, approximately 42.4% of which were demand, savings and money market
deposits at June 30, 1998. Average noninterest-bearing deposits at June 30, 1998
were $76.7 million compared with $59.4 million for the first six months of 1997,
an increase of $17.3 million or 29.1%. Approximately 16.3% of average deposits
for the six months ended June 30, 1998 were noninterest-bearing. The amount of
deposits grew due to the opening of new branches and the sale of certificates of
deposit in established branches. The Company's average total deposits for the
six months ended June 30, 1998 were $471.5 million or 18.2% over average total
deposits during the same period in 1997. The Company's total deposits at June
30, 1998, were $487.0 million, up $72.5 million or 17.5% over total deposits at
June 30, 1997.

As part of its effort to cross-sell its products and services, the Company
actively solicits time deposits from existing customers. In addition, the
Company receives time deposits from government municipalities and utility
districts as well as from corporations seeking to place deposits in
minority-owned businesses, such as the Company. These time deposits generally
renew at maturity and have provided a stable base of

34
<PAGE>
time deposits. Unlike other financial institutions, where large time deposits
are often considered volatile, the Company believes that based on its historical
experience its large time deposits have core-type characteristics. It has been
the Company's experience that, generally, Asian customers and customers near
retirement age have a higher proportion of savings in time deposits than in
other investment vehicles because of the security provided by FDIC insurance. In
pricing its time deposits, the Company seeks to be competitive but generally
prices near the middle of a given market. Of the $124.0 million of time deposits
greater than $100,000 at June 30, 1998, accounts totaling $68.5 million have
been with the Company longer than one year.

The daily average balances and weighted average rates paid on
interest-bearing deposits for the six months ended June 30, 1998 are presented
below:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
---------------------
AMOUNT RATE
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Interest-bearing deposits:
Money market checking.................................................... $ 29,083 2.60%
Savings and money market deposits........................................ 87,086 3.71
Time deposits less than $100,000......................................... 158,317 5.46
Time deposits $100,000 and over.......................................... 120,368 5.73
----------
Total interest-bearing deposits...................................... 394,854 4.94
Noninterest-bearing deposits............................................... 76,658 --
----------
Total deposits....................................................... $ 471,512 4.14%
---------- ---
---------- ---
</TABLE>

The following table sets forth the amount of the Company's time deposits
that are $100,000 or greater by time remaining until maturity:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------
(IN THOUSANDS)
<S> <C>
Three months or less.................................................... $ 31,348
Over three through six months........................................... 32,621
Over six through 12 months.............................................. 38,619
Over 12 months.......................................................... 21,459
--------
Total............................................................. $ 124,047
--------
--------
</TABLE>

OTHER BORROWINGS

Other short-term borrowings principally consist of U.S. Treasury tax note
option accounts and have a maturity of 14 days or less.

35
<PAGE>
The following table presents the categories of other borrowings:

<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased and securities sold under repurchase agreements:
on June 30................................................................................ $ -- $ --
average during the period................................................................. 552 1,492
maximum month-end balance during the period............................................... -- 5,000
FHLB notes:
on June 30................................................................................ $ -- $ 18,800
average during the period................................................................. 10,501 12,667
maximum month-end balance during the period............................................... 15,900 18,800
Other short-term borrowings:
on June 30................................................................................ $ 132 $ 581
average during the period................................................................. 501 648
maximum month-end balance during the period............................................... 646 664
</TABLE>

Additionally, the Company has several unused lines of credit with
correspondent banks totaling $7.0 million at June 30, 1998.

INTEREST RATE SENSITIVITY AND LIQUIDITY

The Company's Funds Management Policy provides management with the necessary
guidelines for effective funds management, and the Company has established a
measurement system for monitoring its net interest rate sensitivity position.
The Company manages its sensitivity position within established guidelines.

Interest rate risk is managed by the Asset and Liability Committee ("ALCO")
which is composed of directors and senior officers of the Company, in accordance
with policies approved by the Company's Board of Directors. The ALCO formulates
strategies based on appropriate levels of interest rate risk. In determining the
appropriate level of interest rate risk, the ALCO considers the impact on
earnings and capital of the current outlook on interest rates, potential changes
in interest rates, regional economies, liquidity, business strategies and other
factors. The ALCO meets regularly to review, among other things, the sensitivity
of assets and liabilities to interest rate changes, the book and market values
of assets and liabilities, unrealized gains and losses, purchase and sale
activities, commitments to originate loans and the maturities of investments and
borrowings. Additionally, the Rate Committee reviews liquidity, cash flow
flexibility, maturities of deposits and consumer and commercial deposit
activity. Management uses two methodologies to manage interest rate risk: (i) an
analysis of relationships between interest-earning assets and interest-bearing
liabilities and (ii) an interest rate shock simulation model. The Company has
traditionally managed its business to reduce its overall exposure to changes in
interest rates, however, under current policies of the Company's Board of
Directors, management has been given some latitude to increase the Company's
interest rate sensitivity position within certain limits if, in management's
judgment, it will enhance profitability. As a result, changes in market interest
rates may have a greater impact on the Company's financial performance in the
future than they have had historically.

The Company manages its exposure to interest rates by structuring its
balance sheet in the ordinary course of business. The Company has not entered
into instruments such as leveraged derivatives, structured notes, interest rate
swaps, caps, floors, financial options, financial futures contracts or forward
delivery contracts for the purpose of reducing interest rate risk.

An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is performed
by analyzing the maturity and repricing relationships between interest-earning
assets

36
<PAGE>
and interest-bearing liabilities at specific points in time ("GAP") and by
analyzing the effects of interest rate changes on net interest income over
specific periods of time by projecting the performance of the mix of assets and
liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in interest
rates. A company is considered to be asset sensitive, or having a positive GAP,
when the amount of its interest-earning assets maturing or repricing within a
given period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a company is
considered to be liability sensitive, or having a negative GAP, when the amount
of its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of its interest-earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a negative
GAP would tend to affect adversely net interest income, while a positive GAP
would tend to result in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in an increase in
net interest income, while a positive GAP would tend to affect net interest
income adversely.

The following table sets forth an interest rate sensitivity analysis for the
Company at June 30, 1998:

<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
---------------------------------------------------------------------------------------------
GREATER
0-30 31-180 180-365 1-3 3-5 5-10 THAN 10
DAYS DAYS DAYS YEARS YEARS YEARS YEARS TOTAL
--------- ----------- ---------- ---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities....................... $ 16,880 $ 20,843 $ 21,030 $ 18,764 $ 7,950 $ 12,141 $ 9,981 $107,589
Loans............................ 257,019 32,277 48,220 22,591 5,594 632 28 366,361
Federal funds sold and other
temporary investments.......... 23,486 -- -- -- -- -- -- 23,486
--------- ----------- ---------- ---------- -------- -------- -------- --------
Total interest-earning assets.... 297,385 53,120 69,250 41,355 13,544 $ 12,773 $ 10,009 497,436
--------- ----------- ---------- ---------- -------- -------- -------- --------
Interest-bearing liabilities:
Demand, money market and savings
deposits....................... -- 49,253 24,625 49,253 -- -- -- 123,131
Time deposits.................... 41,709 124,452 80,243 31,840 2,152 -- -- 280,396
Other borrowings................. 132 -- -- -- -- -- 132
--------- ----------- ---------- ---------- -------- -------- -------- --------
Total interest-bearing
liabilities.................... 41,841 173,705 104,868 81,093 2,152 -- -- 403,659
--------- ----------- ---------- ---------- -------- -------- -------- --------
Period GAP....................... $ 255,544 $ (120,585) $ (35,618) $ (39,738) $ 11,392 $ 12,773 $ 10,009 $ 93,777
Cumulative GAP................... 255,544 134,959 99,341 59,603 70,995 83,768 93,777
Period GAP to total assets....... 48.43% (22.85)% (6.75)% (7.53)% 2.16% 2.42% 1.89%
Cumulative GAP to total assets... 48.43% 25.58% 18.83% 11.30% 13.46% 15.88% 17.77%
Cumulative interest-earning
assets to cumulative interest-
bearing liabilities............ 710.75% 162.61% 131.00% 114.84% 117.59% 120.75% 123.23%
</TABLE>

37
<PAGE>
The preceding table provides Company management with repricing data within
given time frames. The purpose of this information is to assist management in
the elements of pricing and of matching interest sensitive assets with interest
sensitive liabilities within time frames. The table indicates a positive GAP on
a cumulative basis for the three time periods covering the next 365 days of
$255.5 million, $135.0 million, and $99.3 million, respectively. With this
condition, the Company is susceptible to a decrease in net interest income
should market interest rates decrease. The Company is aware of this imbalance
and has initiated strategies to lower the positive GAP by emphasizing the
origination of fixed rate loans while shortening the terms of fixed rate
liability products. GAP reflects a one-day position that is continually changing
and is not indicative of the Company's position at any other time. While the GAP
position is a useful tool in measuring interest rate risk and contributes toward
effective asset and liability management, it is difficult to predict the effect
of changing interest rates solely on that measure, without accounting for
alterations in the maturity or repricing characteristics of the balance sheet
that occur during changes in market interest rates. For example, the GAP
position reflects only the prepayment assumptions pertaining to the current rate
environment. Assets tend to prepay more rapidly during periods of declining
interest rates than during periods of rising interest rates. Because of this and
other risk factors not contemplated by the GAP position, an institution could
have a matched GAP position in the current rate environment and still have its
net interest income exposed to increased rate risk. The Company's Rate Committee
and the ALCO review the Company's interest rate risk position on a weekly and
monthly basis, respectively.

As a financial institution, the Company's primary component of market risk
is interest rate volatility, primarily in the prime lending rate. Fluctuations
in interest rates will ultimately impact both the level of income and expense
recorded on most of the Company's assets and liabilities, and the market value
of all interest-earning assets and interest-bearing liabilities, other than
those which have a short term to maturity. Based upon the nature of the
Company's operations, the Company is not subject to foreign exchange or
commodity price risk. The Company does not own any trading assets.

The Company's exposure to market risk is reviewed on a regular basis by the
ALCO. Interest rate risk is the potential of economic losses due to future
interest rate changes. These economic losses can be reflected as a loss of
future net interest income and/or a loss of current fair market values. The
objective is to measure the effect on net interest income and to adjust the
balance sheet to minimize the inherent risk while at the same time maximizing
income. Management realizes certain risks are inherent, and that the goal is to
identify, monitor and accept the risks.

The Company applies a economic value of equity ("EVE") methodology to gauge
its interest rate risk exposure as derived from its simulation model. Generally,
EVE is the discounted present value of the difference between incoming cash
flows on interest-earning assets and other investments and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk by measuring the change in the EVE that would result
from a theoretical 200 basis point change in market interest rates. Both a 200
basis point increase and a 200 basis point decrease in market rates are
considered.

At June 30, 1998, it was estimated that the Company's EVE would decrease
7.0% in the event of a 200 basis point increase in market interest rates. The
Company's EVE at the same date would increase 2.4% in the event of a 200 basis
point decrease in market interest rates.

38
<PAGE>
Presented below, as of June 30, 1998, is an analysis of the Company's
interest rate risk as measured by changes in EVE for instantaneous and sustained
parallel shifts of 200 basis points in market interest rates:

<TABLE>
<CAPTION>
EVE AS A % OF
PRESENT VALUE OF ASSETS
$ CHANGE IN EVE ------------------------
CHANGE IN RATES (IN THOUSANDS) % CHANGE IN EVE EVE RATIO CHANGE
- ----------------- ---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
-200 bp $ 839 2.39% 6.76% 11bp
0 bp -- -- 6.65% --
+200 bp (2,456) (7.01)% 6.24% (41) bp
</TABLE>

Management believes that the EVE methodology overcomes three shortcomings of
the typical maturity GAP methodology. First, it does not use arbitrary repricing
intervals and accounts for all expected future cash flows. Second, because the
EVE method projects cash flows of each financial instrument under different
interest rate environments, it can incorporate the effect of embedded options on
an institution's interest rate risk exposure. Third, it allows interest rates on
different instruments to change by varying amounts in response to a change in
market interest rates, resulting in more accurate estimates of cash flows.

As with any method of gauging interest rate risk, however, there are certain
shortcomings inherent to the EVE methodology. The model assumes interest rate
changes are instantaneous parallel shifts in the yield curve. In reality, rate
changes are rarely instantaneous. The use of the simplifying assumption that
short-term and long-term rates change by the same degree may also misstate
historical rate patterns, which rarely show parallel yield curve shifts.
Further, the model assumes that certain assets and liabilities of similar
maturity or repricing will react identically to changes in rates. In reality,
the market value of certain types of financial instruments may adjust in
anticipation of changes in market rates, while any adjustment in the valuation
of other types of financial instruments may lag behind the change in general
market rates. Additionally, the EVE methodology does not reflect the full impact
of contractual restrictions on changes in rates for certain assets, such as
adjustable rate loans. When interest rates change, actual loan prepayments and
actual early withdrawals from time deposits may deviate significantly from the
assumptions used in the model. Finally, this methodology does not measure or
reflect the impact that higher rates may have on the ability of adjustable-rate
loan clients to service their debt. All of these factors are considered in
monitoring the Company's exposure to interest rate risk.

Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. The Company's liquidity needs are met primarily by
financing activities, which consist mainly of growth in time deposits,
supplemented by available investment securities held-for-sale, other borrowings
and earnings through operating activities. Although access to purchased funds
from correspondent banks is available and has been utilized on occasion to take
advantage of investment opportunities, the Company does not generally rely on
these external funding sources. The cash and federal funds sold position,
supplemented by amortizing investments along with payments and maturities within
the loan portfolio, have historically created an adequate liquidity position.

The Company uses federal funds purchased and other borrowings as funding
sources and in its management of interest rate risk. Federal funds purchased
generally represent overnight borrowings. Other borrowings principally consist
of U.S. Treasury tax note option accounts that have maturities of 14 days or
less and borrowings from the Federal Home Loan Bank ("FHLB").

FHLB advances may be utilized from time to time as either a short-term
funding source or a longer-term funding source. FHLB advances can be
particularly attractive as a longer-term funding source to balance interest rate
sensitivity and reduce interest rate risk. The Company is eligible for two
borrowing programs through the FHLB. The first, called "Short-Term Fixed,"
requires delivery of eligible securities for collateral. Maturities under this
program range from one to 35 days. The Company does not currently have any
borrowings under this program. The Company currently maintains some of its
investment

39
<PAGE>
securities in safekeeping at the FHLB of Dallas. At June 30, 1998, the Company
had approximately $3.5 million available for pledging.

The second borrowing program, the "Blanket Borrowing Program," is under a
borrowing agreement which does not require the delivery of specific collateral.
Borrowings are limited to a maximum of 75% of the Company's one- to four-family
mortgage loans. At June 30, 1998, the Company had approximately $10.2 million in
potential borrowings available under this program.

CAPITAL RESOURCES

Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Federal Reserve Board and the Bank is subject to capital adequacy
requirements imposed by the OCC. Both the Federal Reserve Board and the OCC have
adopted risk-based capital requirements for assessing bank holding company and
bank capital adequacy. These standards define capital and establish minimum
capital requirements in relation to assets and off-balance sheet exposure,
adjusted for credit risk. The risk-based capital standards currently in effect
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding companies and banks, to account
for off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate relative risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.

The risk-based capital standards of the Federal Reserve Board require all
bank holding companies to have "Tier 1 capital" of at least 4.0% and "total
risk-based" capital (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted
assets. "Tier 1 capital" generally includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings, less deductions for goodwill and various other intangibles.
"Tier 2 capital" may consist of a limited amount of intermediate-term preferred
stock, a limited amount of term subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock not qualifying
as Tier 1 capital, and a limited amount of the general valuation allowance for
loan losses. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital."

The Federal Reserve Board has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.

Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Bank is subject to capital adequacy guidelines of the OCC that
are substantially similar to the Federal Reserve Board's guidelines. Also
pursuant to FDICIA, the OCC has promulgated regulations setting the levels at
which an insured institution such as the Bank would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The Bank is classified
"well capitalized" for purposes of the OCC's prompt corrective action
regulations. See "Supervision and Regulation--The Company" and "--The Bank."

40
<PAGE>
Shareholders' equity increased from $30.5 million at December 31, 1997 to
$34.0 million at June 30, 1998, an increase of $3.5 million or 11.5%. This
increase was primarily the result of net income of $2.8 million for the six
months ended June 30, 1998.

The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of June 30, 1998 to the minimum and
well capitalized regulatory standards:

<TABLE>
<CAPTION>
ACTUAL
MINIMUM WELL RATIO AT
REQUIRED CAPITALIZED JUNE 30, 1998
---------- ----------- -------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio................... 3.00%(1) N/A 6.34%
Tier 1 risk-based capital
ratio.......................... 4.00 N/A 8.71
Risk-based capital ratio......... 8.00 N/A 10.12
THE BANK
Leverage ratio................... 3.00%(2) 5.00% 6.34%
Tier 1 risk-based capital
ratio.......................... 4.00 8.00 8.71
Risk-based capital ratio......... 8.00 10.00 10.12
</TABLE>

- ---------

(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 200 basis points above the required minimum.

(2) The OCC may require the Bank to maintain a leverage ratio of up to 200 basis
points above the required minimum.

YEAR 2000 COMPLIANCE

The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by the Company's automated
data processing and information systems. The Year 2000 problem is a result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures.

The Company uses a vendor-provided system as its "core" banking application
software to process data pertaining to its demand deposits, savings accounts,
certificates of deposit and other deposits, loans and like items. The provider
has indicated that it will certify the Company's "core" banking applications to
be Year 2000 compliant and testing is expected to be completed during 1999.

Management of the Company believes costs of addressing potential problems
are not currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods. In
addition, the Company is currently considering the purchase of hardware and core
banking application software to perform all functions in-house. Management
believes the purchase and processing of data in-house will not have a
significant impact on the Company's ability to comply with the Year 2000 issue.
The Company has a backup system in place in the event its current systems are
not Year 2000 compliant.

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

OVERVIEW

From December 31, 1995 to December 31, 1997, the Company experienced
consistent growth as assets increased from $322.8 million at December 31, 1995
to $505.1 million at December 31, 1997, an increase of $182.3 million or 56.5%,
as its branch network expanded and it broadened its products and services to
customers. Among the six branches opened during this period, the Company
expanded into the Dallas,

41
<PAGE>
Texas metropolitan area by opening its first branch in the Richardson suburb of
Dallas in April of 1996. The Company also formed Advantage, a factoring company,
in February of 1994 and established a loan production office in New Orleans,
Louisiana in October of 1996. In each of these endeavors, the Company has met or
exceeded growth and profitability expectations. Loans accounted for the majority
of the Company's asset growth and increased $171.7 million to $348.9 million
over the three-year period ending December 31, 1997. Supporting this substantial
expansion was an increase in deposits which rose to $445.9 million, a 56.4%
increase during the period. Shareholders' equity increased from $23.5 million at
the end of 1995 to $30.5 million at the end of 1997.

Net income available to shareholders was $4.2 million, $2.0 million and $2.6
million for the years ended December 31, 1997, 1996 and 1995, respectively, and
diluted net income per common share was $0.74, $0.37 and $0.51 for these same
periods. Earnings growth from 1996 to 1997 resulted principally from strong
internal loan growth and a higher net interest margin coupled with an improved
efficiency ratio. The decrease in earnings from 1995 to 1996 was due to
additional noninterest expense associated with the openings of the new branch
offices and higher loan loss provisions associated with an increase in loan
volume. The Company posted returns on average assets of 0.89%, 0.54% and 0.96%
and returns on average equity of 14.69%, 8.36% and 12.06% for the years ended
1997, 1996 and 1995, respectively.

RESULTS OF OPERATIONS

NET INTEREST INCOME

1997 VERSUS 1996. Net interest income totaled $23.0 million in 1997
compared with $17.6 million in 1996, an increase of $5.4 million or 30.7%. The
increase resulted primarily from a 38.3% increase in interest income on loans
primarily due to a $59.8 million or 44.8% increase in commercial and industrial
loans. Interest expense increased $4.2 million while interest income increased
$9.6 million. Net interest margins were 5.22% and 5.02% and net interest spreads
were 4.43% and 4.22% for 1997 and 1996, respectively.

Interest income on loans increased to $33.0 million in 1997 from $23.9
million in 1996. The increase was driven by growth in the average loan portfolio
of $87.3 million or 39.1% while the Company experienced a decrease in the yield
on average loans to 10.63% in 1997 from 10.69% in 1996. As a result of strong
loan growth, the average securities portfolio declined by $2.0 million or 1.7%,
while its yield rose 28 basis points from 6.01% in 1996 to 6.29% in 1997.

Interest expense increased to $18.1 million in 1997 from $13.9 million in
1996. This increase was driven by $59.9 million of growth in average time
deposits to $248.4 million at the end of 1997, spurred by only a slight increase
in average rates from 5.45% in 1996 to 5.51% during 1997. The higher level of
time deposits was the primary funding source of the Company's loan growth. Other
borrowings, another funding source for the Company, rose by $7.0 million or
73.6%.

1996 VERSUS 1995. Net interest income increased $4.2 million to $17.6
million in 1996 from $13.4 million in 1995, primarily due to growth in interest
income of $8.5 million. A $95.9 million rise in average interest-earning assets
helped to spur the growth in interest income. Net interest margins were 5.02%
and 5.27% and net interest spreads were 4.22% and 4.29% for 1996 and 1995,
respectively.

Interest income on loans increased $8.0 million to $23.9 million in 1996
from $15.9 million in 1995. The increase was driven by growth in the average
loan portfolio of $77.3 million or 52.9% while experiencing a decrease in the
yield on average loans to 10.69% in 1996 from 10.86% in 1995. Meanwhile, the
average securities portfolio increased $15.8 million, while its yield decreased
65 basis points from 6.66% in 1995 to 6.01% in 1996 .

Interest expense increased 44.8% to $13.9 million in 1996 from $9.6 million
in 1995. This increase was driven by growth in average time deposits of $67.8
million or 56.2% from $120.7 million at the end of 1995. The average time
deposit rate paid by the Company during this period declined by 11 basis points
in 1996.

42
<PAGE>
The following table presents the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates. No tax-equivalent adjustments were made and all average
balances are yearly average balances. Nonaccruing loans have been included in
the tables as loans carrying a zero yield.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans....................... $310,781 $33,028 10.63% $223,514 $23,884 10.69% $146,210 $15,876 10.86%
Taxable securities.......... 95,680 6,161 6.44 100,490 6,103 6.07 85,427 5,837 6.83
Tax-exempt securities....... 17,570 968 5.51 14,734 817 5.54 13,971 779 5.58
Federal funds sold and other
temporary investments..... 16,926 998 5.90 11,962 719 6.01 9,181 573 6.24
----------- ------- ----------- ------- ----------- -------
Total interest-earning
assets.................. 440,957 41,155 9.33% 350,700 31,523 8.99% 254,789 23,065 9.05%
------- ------- -------
Less allowance for loan
losses...................... (2,722) (1,869) (1,442)
----------- ----------- -----------
Total interest-earning assets,
net of allowance for loan
losses...................... 438,235 348,831 253,347
Nonearning assets............. 30,862 24,866 17,740
----------- ----------- -----------
Total assets.............. $469,097 $373,697 $271,087
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits.................. $ 26,765 $ 697 2.60% $ 24,664 $ 640 2.59% $ 21,666 $ 560 2.58%
Savings and money market
accounts.................. 76,799 2,733 3.56 66,992 2,370 3.54 47,556 1,602 3.37
Time deposits............... 248,447 13,685 5.51 188,570 10,275 5.45 120,725 6,709 5.56
Federal funds purchased and
securities sold under
repurchase agreements..... 1,804 100 5.54 1,227 65 5.30 1,203 76 6.32
Other borrowings............ 16,084 923 5.74 10,435 577 5.53 11,233 693 6.17
----------- ------- ----------- ------- ----------- -------
Total interest-bearing
liabilities............... 369,899 18,138 4.90% 291,888 13,927 4.77% 202,383 9,640 4.76%
------- ------- -------
Noninterest-bearing
liabilities:
Noninterest-bearing demand
deposits.................. 64,884 53,129 43,802
Other liabilities........... 5,945 4,590 3,341
----------- ----------- -----------
Total liabilities......... 440,728 349,607 249,526
Shareholders' equity.......... 28,369 24,090 21,561
----------- ----------- -----------
Total liabilities and
shareholders' equity...... $469,097 $373,697 $271,087
----------- ----------- -----------
----------- ----------- -----------
Net interest income......... $23,017 $17,596 $13,425
------- ------- -------
------- ------- -------
Net interest spread......... 4.43% 4.22% 4.29%
------- ------- -------
------- ------- -------
Net interest margin......... 5.22% 5.02% 5.27%
------- ------- -------
------- ------- -------
</TABLE>

43
<PAGE>
The following table presents the dollar amount of changes in interest income
and interest expense for the major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase related to
higher outstanding balances and changes in interest rates. For purposes of this
table, changes attributable to both rate and volume have been allocated to rate.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
------------------------------- -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
-------------------- --------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans............................................... $ 9,329 $ (185) $ 9,144 $ 8,395 $ (387) $ 8,008
Securities.......................................... (119) 328 209 1,054 (750) 304
Federal funds sold and other temporary
investments....................................... 298 (19) 279 174 (28) 146
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in interest income...... 9,508 124 9,632 9,623 (1,165) 8,458
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits.................... 54 3 57 77 3 80
Savings and money market accounts................... 347 16 363 655 113 768
Time deposits....................................... 3,263 147 3,410 3,772 (206) 3,566
Federal funds purchased............................. 31 4 35 2 (13) (11)
Other borrowings.................................... 312 34 346 (49) (67) (116)
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in interest expense..... 4,007 204 4,211 4,457 (170) 4,287
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net interest income............ $ 5,501 $ (80) $ 5,421 $ 5,166 $ (995) $ 4,171
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

PROVISION FOR LOAN LOSSES

The 1997 provision for loan losses increased to $3.4 million from $2.1
million in 1996, an increase of $1.3 million or 61.9%. The increased provision
for 1997 reflects loan growth of 24.3% and was also impacted by a significant
charge-off totaling $700,000 related to one borrower in the food service
industry. The 1996 provision increased $1.3 million, or 164.1%, from $792,000 at
December 31, 1995 due to the 52.9% growth in average loans over 1995 and a
$650,000 charge-off of a loan to one borrower in the waste management industry.

NONINTEREST INCOME

Noninterest income for the year ended December 31, 1997 was $4.4 million, up
from $3.4 million in 1996 and $2.9 million for 1995. For 1997, the majority of
the growth in noninterest income resulted from a continuation of a trend toward
increases in other loan-related fees that began in 1996. Additionally, increases
in service charges were realized through an improvement in monitoring the
accounts subject to service charges. Noninterest income increased in 1996 from
1995 through an increase in other loan-related fees. The following table
presents the major categories of noninterest income:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts.............................. $ 2,248 $ 1,981 $ 2,083
Other loan-related fees.......................................... 1,440 972 428
Letters of credit commissions and fees........................... 357 359 330
Gain on sale of investment securities, net....................... 189 56 62
Other noninterest income......................................... 157 78 --
--------- --------- ---------
Total noninterest income..................................... $ 4,391 $ 3,446 $ 2,903
--------- --------- ---------
--------- --------- ---------
</TABLE>

44
<PAGE>
NONINTEREST EXPENSE

For the years ended 1997, 1996 and 1995, noninterest expense totaled $18.1
million, $16.1 million and $11.8 million, respectively. The increase in 1996 of
$4.3 million or 36.4% was primarily due to higher employee compensation and
benefits and occupancy expense related to the four new branches opened during
the year. The Company's efficiency ratios were 66.48%, 76.73% and 72.82% in
1997, 1996 and 1995, respectively. The improvement in the efficiency ratio in
1997 reflects the Company's continued efforts to control operating expenses and
gain other efficiencies through such means as upgrading centralized computer
systems. The following table presents the major categories of noninterest
expense:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits........................... $ 8,940 $ 8,048 $ 5,932
Non-staff expenses:
Occupancy.................................................. 3,843 3,330 1,965
Other real estate, net..................................... 474 199 77
Data processing............................................ 465 283 369
Professional fees.......................................... 431 346 274
Advertising................................................ 332 308 260
Consultants/contract labor................................. 556 454 368
Director compensation...................................... 360 295 275
Printing and supplies...................................... 369 519 330
Telecommunications......................................... 349 317 199
Other noninterest expense.................................. 1,977 2,003 1,796
--------- --------- ---------
Total non-staff expenses................................. 9,156 8,054 5,913
--------- --------- ---------
Total noninterest expense................................ $ 18,096 $ 16,102 $ 11,845
--------- --------- ---------
--------- --------- ---------
</TABLE>

Employee compensation and benefits expense for the year ended December 31,
1997 was $8.9 million, an increase of $892,000 or 11.1% from $8.0 million for
1996. Employee compensation and benefits expense for the year 1996 was up $2.1
million or 35.6% from 1995. The increase in 1997 resulted primarily from the
effects of a full year of expenses for the four branches opened in 1996, the
addition of the Veterans Memorial (Houston) branch which opened in April of 1997
and costs associated with establishment of the Milam (Houston) branch which
opened in early January of 1998. Additionally, staff was added to support the
residential mortgage division and the factoring subsidiary. The increase in 1996
was primarily due to increased staff to expand the Company's branch network,
doubling the number of branches from four to eight, and opening a loan
production office in New Orleans. Total full-time equivalent employees at
December 31, 1997, 1996 and 1995 were 225, 224 and 179, respectively

Non-staff expenses were $9.2 million in 1997, an increase of $1.1 million or
13.6% from $8.1 million in 1996. The increase in 1997 was the result of a full
year of higher occupancy expense from the increased number of operating branches
as well as the cost of technology upgrades. Additionally, during 1997 other real
estate expenses increased approximately $275,000 in connection with the
maintenance of an asset acquired by foreclosure in the second quarter until its
sale in December of 1997. The 1996 non-staff expense level increased $2.1
million or 35.6% from 1995 as a direct result of expanding from four branches to
eight branches plus the opening of a loan production office.

INCOME TAXES

Income tax expense is influenced by the level and mix of taxable and
tax-exempt income and the amount of non-deductible interest and other expenses.
In 1997, income tax expense was $1.8 million, up $1.0 million or 123.6% from
1996 income tax expense of $809,000 as a result of the 111.0% increase in pre-
tax income driven by strong internal loan growth. The 1996 amount was $282,000
lower than the 1995

45
<PAGE>
amount of $1.1 million, or 25.6%. The income tax component of the Texas
franchise tax was $132,000, $108,544, and $68,425 in 1997, 1996 and 1995,
respectively. The effective tax rates in 1997, 1996 and 1995, respectively, were
30.1%, 28.7% and 29.6%, respectively.

FINANCIAL CONDITION

LOAN PORTFOLIO

Total loans increased by $68.3 million or 24.3% to $348.9 million at
December 31, 1997, from $280.6 million at December 31, 1996. During 1996, total
loans increased by $103.4 million or 58.4% from $177.2 million at December 31,
1995. The growth in loans reflected the improving local economy, opening of new
branches and the Company's investment in loan production capacity.

At December 31, 1997, total loans represented 78.3% of deposits and 69.1% of
total assets. Total loans as a percentage of deposits were 73.6% at December 31,
1996, compared with 62.1% at December 31, 1995.

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

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995(1) 1994(1) 1993(1)
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial..... $193,355 54.77% $133,564 47.05% $ 53,850 29.88% $ 39,022 30.56% $ 37,859 31.81%

Real estate mortgage
Residential................. 11,797 3.35 8,703 3.07 -- -- -- -- -- --
Commercial.................. 110,860 31.40 104,425 36.78 -- -- -- -- -- --
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
122,657 34.75 113,128 39.85 94,411 52.38 71,101 55.69 58,902 49.49
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Real estate construction
Residential................. 9,859 2.79 1,543 0.54 -- -- -- -- -- --
Commercial.................. 11,750 3.33 16,096 5.67 -- -- -- -- -- --
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
21,609 6.12 17,639 6.21 11,772 6.53 3,284 2.57 986 0.83
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Consumer and other............ 10,147 2.87 13,343 4.70 18,065 10.02 14,277 11.18 21,262 17.87

Factored receivables.......... 5,249 1.49 6,217 2.19 2,147 1.19 -- -- -- --
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Gross loans................... 353,017 100.00% 283,891 100.00% 180,245 100.00% 127,684 100.00% 119,009 100.00%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Less: unearned discounts,
interest and deferred
fees........................ (4,107) (3,294) (3,039) (1,915) (2,698)
-------- -------- -------- -------- --------
Total loans............... $348,910 $280,597 $177,206 $125,769 $116,311
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

- ------------

Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, ACCOUNTING FOR CREDITORS FOR IMPAIRMENT OF A LOAN,
as amended by Statement of Financial Accounting Standards No. 118, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME RECOGNITION AND DISCLOSURES. Under
Statement No. 114, as amended, a loan is considered impaired based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The measurement of impaired loans
is based on the present value of expected future cash flows discounted at the
loan's effective interest rate or the loan's observable market price or based on
the fair value of the

46
<PAGE>
collateral if the loan is collateral-dependent. The implementation of Statement
No. 114 did not have a material adverse affect on the Company's financial
statements.

NONPERFORMING ASSETS

Nonperforming assets at December 31, 1997 were $3.3 million compared with
$2.3 million at December 31, 1996 and $1.8 million at December 31, 1995. The
increases in nonperforming assets for the years ended December 31, 1997 and 1996
were $949,000 or 40.9% and $522,000 or 29.0%, respectively. The increase for
1997 was due principally to two loans made to one borrower. The first loan of
$838,000 was paid off in February of 1998, and the second note of $156,000, for
which appropriate reserves have been made, remains on nonaccrual status.

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

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................. $ 2,663 $ 1,581 $ 1,264 $ 963 $ 1,201
Other real estate............................ 606 739 534 584 1,493
--------- --------- --------- --------- ---------
Total nonperforming assets............... $ 3,269 $ 2,320 $ 1,798 $ 1,547 $ 2,694
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Nonperforming assets to total loans and other
real estate................................ 0.94% 0.82% 1.01% 1.22% 2.29%
Nonperforming assets to total assets......... 0.65% 0.54% 0.56% 0.67% 1.41%
</TABLE>

ALLOWANCE FOR LOAN LOSSES

For the year ended 1997, net loan charge-offs totaled $1.9 million or 0.62%
of average loans outstanding for the period, compared with $1.6 million or 0.71%
in net loan charge-offs during 1996. During 1997, the Company recorded a
provision for loan losses of $3.4 million compared with $2.1 million for 1996.
This increase was primarily related to loan growth net of the impact of a
$700,000 charge-off related to one credit during the year. At December 31, 1997,
the allowance totaled $3.6 million, or 1.02% of total loans. The Company made a
provision for loan losses of $2.1 million during 1996 compared with a provision
of $792,000 for 1995. At December 31, 1996, the allowance aggregated $2.1
million or 0.76% of total loans.

47
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995(1) 1994(1) 1993(1)
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding.............................. $ 310,781 $ 223,514 $ 146,210 $ 118,762 $ 108,929
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total loans outstanding at end of period............... $ 348,910 $ 280,597 $ 177,206 $ 125,769 $ 116,311
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Allowance for loan losses at beginning of period....... $ 2,141 $ 1,612 $ 1,264 $ 1,345 $ 1,379
Provision for loan losses.............................. 3,350 2,118 792 422 557
Charge-offs:
Commercial and industrial............................ (827) (1,236) (386) (244) (443)
Real estate - mortgage............................... (584) -- (53) (375) (81)
Real estate - construction........................... -- -- -- -- --
Consumer and other................................... (812) (570) (260) (60) (122)
--------- --------- --------- --------- ---------
Total charge-offs.................................. (2,223) (1,806) (699) (679) (646)
--------- --------- --------- --------- ---------
Recoveries:
Commercial and industrial............................ 79 146 98 100 26
Real estate - mortgage............................... 156 -- 108 56 26
Real estate - construction........................... -- -- -- -- --
Consumer and other................................... 66 71 49 20 3
--------- --------- --------- --------- ---------
Total recoveries................................... 301 217 255 176 55
--------- --------- --------- --------- ---------
Net loan charge-offs................................... (1,922) (1,589) (444) (503) (591)
--------- --------- --------- --------- ---------
Allowance for loan losses at end of period............. $ 3,569 $ 2,141 $ 1,612 $ 1,264 $ 1,345
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Ratio of allowance to end of period total loans........ 1.02% 0.76% 0.91% 1.01% 1.16%
Ratio of net loan charge-offs to average loans......... 0.62 0.71 0.30 0.42 0.54
Ratio of allowance to end of period nonperforming
loans................................................ 134.02 135.42 127.53 131.26 111.99
</TABLE>

- ----------

(1) The Company's loan portfolio records were historically categorized by
collateral codes. In 1998 the Company recoded its loan portfolio to reflect
the business purpose of the loans. Detailed information for charge-offs and
recoveries by business purpose prior to 1996 is unavailable due to a system
conversion in 1995. For years prior to 1996, charge-offs and recoveries were
recorded by collateral code.

48
<PAGE>
The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future losses may occur. The total allowance is
available to absorb losses from any segment of the credit portfolio.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996 1995(1)
-------------------------- -------------------------- --------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT GROSS LOANS AMOUNT GROSS LOANS AMOUNT GROSS LOANS
----------- ------------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial and industrial............. $ 1,414 54.77% $ 1,099 47.05% $ 588 29.88%
Real estate - mortgage................ 883 34.75 620 39.85 620 52.38
Real estate - construction............ 111 6.12 88 6.21 29 6.53
Consumer and other.................... 358 2.87 248 4.70 329 10.02
Factored receivables.................. 341 1.49 62 2.19 -- 1.19
Unallocated........................... 462 -- 24 -- 46 --
----------- ------ ----------- ------ ----------- ------
Total allowance for loan losses..... $ 3,569 100.00% $ 2,141 100.00% $ 1,612 100.00%
----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1994(1) 1993(1)
------------------------- -------------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT GROSS LOANS AMOUNT GROSS LOANS
----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses applicable to:
Commercial and industrial...................................... $ 461 30.56% $ 491 31.81%
Real estate - mortgage......................................... 486 55.69 517 49.49
Real estate - construction..................................... 23 2.57 -- 0.83
Consumer and other............................................. 258 11.18 275 17.87
Unallocated.................................................... 36 -- 62 --
----------- ------------ ----------- ------------
Total allowance for loan losses.............................. $ 1,264 100.00% $ 1,345 100.00%
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>

- ----------

(1) The Company's loan portfolio records were historically categorized by
collateral codes. In 1998, the Company recoded its loan portfolio to reflect
the business purpose of the loans. Detailed information for the allowance
for loan losses by business purpose prior to 1996 is unavailable due to a
system conversion in 1995. For years prior to 1996, the allowance for loan
losses was recorded by collateral code.

SECURITIES

The following table summarizes the amortized cost of investment securities
held by the Company:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities.................................... $ 2,977 $ 997 $ 1,994
U.S. Government agency securities........................... 86,553 80,972 89,734
Municipal securities........................................ 17,690 14,930 14,444
Other securities............................................ 4,069 6,052 3,630
--------- --------- ---------
Total securities.......................................... $ 111,289 $ 102,951 $ 109,802
--------- --------- ---------
--------- --------- ---------
</TABLE>

49
<PAGE>
The following table summarizes the contractual maturity of investment securities
at amortized cost (including federal funds sold and other temporary investments)
and their weighted average yields. No tax-equivalent adjustments were made.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS TOTAL
-------------- ------------- -------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------ ----- ------- ----- ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities........... $ 999 7.79% $1,978 6.28% $ -- --% $ -- --% $ 2,977 6.79%
U.S. Government agency securities.. 2,050 3.19 2,212 7.14 26,137 6.18 56,154 7.18 86,553 6.78
Municipal securities............... -- -- 995 5.32 8,545 5.30 8,150 5.23 17,690 5.27
Federal funds sold................. 9,904 6.04 -- -- -- -- -- -- 9,904 6.04
Temporary investments.............. 3,335 4.81 -- -- -- -- -- -- 3,335 4.81
Other securities................... 3,540 5.95 -- -- -- -- 529 6.00 4,069 5.96
------- ----- ------ ----- ------- ----- ------- ----- -------- -----
Total securities................. $19,828 5.61% $5,185 6.47% $34,682 5.96% $64,833 6.93% $124,528 6.43%
------- ----- ------ ----- ------- ----- ------- ----- -------- -----
------- ----- ------ ----- ------- ----- ------- ----- -------- -----
</TABLE>

The following table summarizes the carrying value and classification of
securities:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale.......................................... $ 41,612 $ 25,626 $ 29,530
Held-to-maturity............................................ 71,012 78,054 81,231
--------- --------- ---------
Total securities........................................ $ 112,624 $ 103,680 $ 110,761
--------- --------- ---------
--------- --------- ---------
</TABLE>

At December 31, 1997, securities totaled $112.6 million, a increase of $8.9
million from $103.7 million at December 31, 1996. The increase occurred
primarily in U.S. Government securities and the small increase in the portfolio
as compared with the overall asset growth reflected the Company's use of funds
from customers' deposits to fund loans. During 1996, securities decreased $7.1
million from $110.8 million at December 31, 1995, reflecting the increase in the
loan portfolio. During 1995, the Company transferred from held-to-maturity to
available-for-sale securities with an amortized cost of $50.9 million and
concurrently sold $26.8 million of securities to realize a net gain of $81,000.

50
<PAGE>
The following table presents the amortized cost of securities classified as
available-for-sale and their approximate fair values as of the dates shown:

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF DECEMBER 31, 1996
------------------------------------------------ --------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
----------- ----------- ----------- --------- ----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............. $ 2,977 $ 63 $ -- $ 3,040 $ 997 $ 31 $ -- $ 1,028
U.S. Government agency
securities............. 22,911 697 -- 23,608 10,402 267 -- 10,669
Municipal securities..... 10,320 575 -- 10,895 7,446 350 (18) 7,778
Other securities......... 4,069 -- -- 4,069 6,052 99 -- 6,151
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
Total securities....... $ 40,277 $ 1,335 $ -- $ 41,612 $ 24,897 $ 747 $ (18) $ 25,626
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................ $ 1,994 $ 68 $ -- $ 2,062
U.S. Government agency securities............... 16,239 466 (16) 16,689
Municipal securities............................ 6,708 441 -- 7,149
Other securities................................ 3,630 -- -- 3,630
----------- ----- ----------- ---------
Total securities.............................. $ 28,571 $ 975 $ (16) $ 29,530
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>

The following table presents the amortized cost of securities classified as
held-to-maturity and their approximate fair values as of the dates shown:

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF DECEMBER 31, 1996
------------------------------------------------ --------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
----------- ----------- ----------- --------- ----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency
securities............. $ 63,642 $ 924 $ (141) $ 64,425 $ 70,570 $ 435 $ (810) $ 70,195
Municipal securities..... 7,370 211 -- 7,581 7,484 56 (38) 7,502
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
Total securities....... $ 71,012 $ 1,135 $ (141) $ 72,006 $ 78,054 $ 491 $ (848) $ 77,697
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
----------- ----------- ----------- --------- ----------- ----- ----------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government agency securities............... $ 73,495 $ 396 $ (514) $ 73,377
Municipal securities............................ 7,736 107 (12) 7,831
----------- ----- ----------- ---------
Total securities.............................. $ 81,231 $ 503 $ (526) $ 81,208
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>

DEPOSITS

Average total deposits during 1997 increased to $416.9 million from $333.4
million in 1996, an increase of $83.5 million or 25.0%. The increase resulted
primarily from the three branches opened in 1996 which contributed $30.8 million
of the increase and strong growth at longer established branches. The Company's
ratios of average noninterest-bearing demand deposits to average total deposits
for the years ended December 31, 1997, 1996 and 1995 were 15.6%, 15.9% and
18.7%, respectively.

51
<PAGE>
The average daily balances and weighted average rates paid on deposits for
each of the years ended December 31, 1997, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Money market checking................................ $ 26,765 2.60% $ 24,664 2.59% $ 21,666 2.58%
Savings and money market deposits.................... 76,799 3.56 66,992 3.54 47,556 3.37
Time deposits less than $100,000..................... 145,004 5.41 113,172 5.32 71,383 5.50
Time deposits $100,000 and over...................... 103,443 5.64 75,398 5.65 49,342 5.63
---------- --- ---------- --- ---------- ---
Total interest-bearing deposits.................. 352,011 4.86 280,226 4.74 189,947 4.67
Noninterest-bearing deposits........................... 64,884 -- 53,129 -- 43,802 --
---------- --- ---------- --- ---------- ---
Total deposits..................................... $ 416,895 4.11% $ 333,355 3.99% $ 233,749 3.80%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>

The following table sets forth the amount of the Company's time deposits
that are $100,000 or greater by time remaining until maturity:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997
----------------------
(IN THOUSANDS)
<S> <C>
Three months or less.................................................. $ 29,807
Over three through six months......................................... 22,626
Over six through 12 months............................................ 44,488
Over 12 months........................................................ 11,966
--------
Total............................................................... $ 108,887
--------
--------
</TABLE>

OTHER BORROWINGS

The following table presents the categories of other borrowings by the
Company:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased and securities sold under repurchase agreements:
on December 31................................................................. $ 5,000 $ 5,000 $ --
average during the year........................................................ 1,804 1,227 1,203
maximum month-end balance during the year...................................... 7,000 5,000 6,000
FHLB notes:
on December 31................................................................. $ 15,900 $ 8,800 $ 8,800
average during the year........................................................ 16,084 9,647 10,752
maximum month-end balance during the year...................................... 18,800 11,800 17,500
Other short-term borrowings:
on December 31................................................................. $ 711 $ 766 $ 473
average during the year........................................................ 678 736 481
maximum month-end balance during the year...................................... 1,296 921 788
</TABLE>

At December 31, 1997, FHLB notes consisted of prepayable floating rate notes
scheduled to mature during the fourth quarter of 1998, with total principal
outstanding of $15.9 million and interest rates that

52
<PAGE>
reset periodically based on the six-month London Interbank Offered Rate ("LIBOR
Rate") (5.84% at December 31, 1997) plus an adjustment ranging from minus 15 to
plus five basis points. At December 31, 1996 and 1995, FHLB notes outstanding
totaled $8.8 million and had an interest rate which reset periodically based on
the three-month LIBOR Rate (5.81% and 5.56% at December 31, 1996 and 1995,
respectively) plus 14 basis points. Additionally, the Company had several
unused, unsecured lines of credit with correspondent banks totaling $7.0
million, $12.0 million and $7.0 million at December 31, 1997, 1996 and 1995,
respectively.

INTEREST RATE SENSITIVITY AND LIQUIDITY

The following table sets forth an interest rate sensitivity analysis for the
Company at December 31, 1997:

<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
--------------------------------------------------------------------------------------------------
0-30 31-180 181-365 GREATER THAN
DAYS DAYS DAYS 1-3 YEARS 3-5 YEARS 5-10 YEARS 10 YEARS TOTAL
-------- ---------- ---------- ---------- ---------- ---------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities.................. $ 17,682 $ 21,849 $ 21,962 $ 19,596 $ 8,334 $ 12,727 $ 10,474 $112,624
Loans....................... 244,237 30,704 46,056 21,632 5,234 1,047 -- 348,910
Federal funds sold and other
temporary investments..... 13,239 -- -- -- -- -- -- 13,239
-------- ---------- ---------- ---------- ---------- ---------- ------------ --------
Total interest-earning
assets.................... 275,158 52,553 68,018 41,228 13,568 13,774 10,474 474,773
-------- ---------- ---------- ---------- ---------- ---------- ------------ --------
Interest-bearing liabilities:
Demand, money market and
savings deposits.......... -- 45,127 22,562 45,126 -- -- -- 112,815
Time deposits............... 38,510 114,753 73,918 29,464 1,809 -- -- 258,454
Federal funds purchased..... 5,000 -- -- -- -- -- -- 5,000
Other borrowings............ 711 15,900 -- -- -- -- -- 16,611
-------- ---------- ---------- ---------- ---------- ---------- ------------ --------
Total interest-bearing
liabilities............... 44,221 175,780 96,480 74,590 1,809 -- -- 392,880
-------- ---------- ---------- ---------- ---------- ---------- ------------ --------
Period GAP.................... $230,937 $ (123,227) $ (28,462) $ (33,362) $ 11,759 $ 13,774 $ 10,474 $ 81,893
Cumulative GAP................ 230,937 107,710 79,248 45,886 57,645 71,419 81,893
Period GAP to total assets.... 45.73% (24.40%) (5.64%) (6.61%) 2.33% 2.73% 2.07%
Cumulative GAP to total
assets...................... 45.73% 21.33% 15.69% 9.08% 11.41% 14.14% 16.21%
Cumulative interest-earning
assets to cumulative
interest-bearing
liabilities................. 622.23% 148.96% 125.04% 111.73% 114.67% 118.18% 120.84%
</TABLE>

At December 31, 1997, it was estimated that the Company's EVE would decrease
26.45% in the event of a 200 basis point increase in market interest rates. The
Company's EVE at the same date would increase 5.37% in the event of a 200 basis
point decrease in market interest rates.

Presented below, as of December 31, 1997, is an analysis of the Company's
interest rate risk as measured by changes in EVE for instantaneous and sustained
parallel shifts of 200 basis points in market interest rates:

<TABLE>
<CAPTION>
EVE AS A % OF
PRESENT VALUE OF ASSETS
$ CHANGE IN EVE ----------------------------------------
CHANGE IN RATES (IN THOUSANDS) % CHANGE IN EVE MV RATIO CHANGE
- ----------------- ----------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
-200 bp $ 1,639 5.37% 6.32% 27 bp
0 bp -- -- 6.05% --
+200 bp (8,069) (26.45)% 4.54% (151) bp
</TABLE>

See "--Financial Condition --Interest Rate Sensitivity and Liquidity" for
the six months ended June 30, 1998 and June 30, 1997 for a discussion of the
Company's policies regarding asset and liability risk management and liquidity.

53
<PAGE>
CAPITAL RESOURCES

Shareholders' equity increased to $30.5 million at December 31, 1997 from
$25.4 million at December 31, 1996, an increase of $5.1 million or 20.1%. This
increase was primarily the result of net income of $4.2 million and the issuance
of $1.0 million in Common Stock. During 1996, shareholders' equity increased by
$1.9 million or 8.1%, from $23.5 million at December 31, 1995, primarily the
result of net income of $2.0 million.

The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of December 31, 1997 to the minimum
and well capitalized regulatory standards:

<TABLE>
<CAPTION>
MINIMUM WELL ACTUAL RATIO AT
REQUIRED CAPITALIZED DECEMBER 31, 1997
------- ----------- -----------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio........................ 3.00%(1) N/A 5.92%
Tier 1 risk-based capital ratio....... 4.00 N/A 8.45
Risk-based capital ratio.............. 8.00 N/A 9.46
THE BANK
Leverage ratio........................ 3.00%(2) 5.00% 5.92%
Tier 1 risk-based capital ratio....... 4.00 6.00 8.45
Risk-based capital ratio.............. 8.00 10.00 9.46
</TABLE>

- ---------

(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 200 basis points above the required minimum.

(2) The OCC may require the Bank to maintain a leverage ratio of up to 200 basis
points above the required minimum.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following is a list of all of the directors and executive officers of
the Company, their respective positions with the Company and the Bank and their
ages as of June 30, 1998:

<TABLE>
<CAPTION>
NAME POSITION AGE
- ------------------------------ --------------------------------------------------------------------------- ---
<S> <C> <C>
Helen F. Chen................. Director of the Company and the Bank 51
Tommy F. Chen................. Director of the Company and the Bank 61
May P. Chu.................... Director of the Company and the Bank 50
Ann Crowther-Dixon............ Executive Vice President and Chief Operations Officer of the Bank 50
Attilio F. Galli.............. Senior Vice President and Chief Financial Officer of the Company and the 48
Bank
Jane W. Kwan.................. Director of the Company and the Bank 49
William C. C. Kwan............ Director of the Company and the Bank 53
Edward Lee.................... Director of the Company and the Bank 48
John Lee...................... Director of the Company and the Bank 55
David Tai..................... Executive Vice President, Secretary and Director of the Company; Executive 48
Vice President and Vice Chairman of the Board of the Bank
Joe Ting...................... Director of the Company and the Bank 45
Don J. Wang................... Chairman of the Board and President of the Company; Chairman of the Board 54
and Chief Executive Officer of the Bank
</TABLE>

54
<PAGE>
HELEN F. CHEN. Ms. Chen is a director of the Company and was elected as a
member of the Board of Directors of the Bank in 1989. She is the President of
Metro Investment Group, Inc., an investment company that holds shares of Common
Stock as its principal asset. She is the President-elect of the Houston Chinese
Schools Association and the Principal of the Houston Northwest Chinese School,
where she served as Chairman of the Board from 1991 to 1997. A member of various
civic organizations in Houston, Ms. Chen focuses her volunteer efforts in the
Chinese community. Ms. Chen is the sister of Mr. Don J. Wang. Ms. Chen is not
related to Mr. Tommy F. Chen.

TOMMY F. CHEN. Mr. Chen is a director of the Company and an organizing
director of the Bank. Mr. Chen serves on the Compensation Committee of the
Company and on the Executive Committee, Asset Liability Committee and Directors
Credit Committee of the Bank. Since 1983, he has been the owner of the Downtown
Texaco (Subway) Station. He was an aerospace engineer at NASA for three years
and worked for Chevron Oil Company and Amoco Oil Company for six years. Mr. Chen
has held a real estate brokers license in Texas since 1981. He received a
Masters degree in Physics from Clark University in Worcester, Massachusetts and
a Masters degree and a Ph.D. in Electrical Engineering from the University of
Oklahoma. Mr. Chen serves as a director on the Chinatown Community Development
Board and is a member of the Taiwanese Chamber of Commerce of North America. Mr.
Chen is not related to Ms. Helen F. Chen.

MAY P. CHU. Ms. Chu is a director of the Company and an organizing director
of the Bank. Ms. Chu serves on the Audit Committee and the Compensation
Committee of the Company and on the Executive Committee, Asset Liability
Committee and Directors Credit Committee of the Bank. She is the President and
founder of Signet Consulting, a bank management consulting firm specializing in
regulatory issues. She received a Bachelors degree in Physics from the
University of California at Berkeley and a Ph.D. in Economics from Case Western
Reserve University. Ms. Chu was employed at Texas Commerce Bank and Texas
Commerce Bancshares, Inc. for more than five years, first in the Economic
Division and subsequently in Mergers/Acquisitions.

ANN CROWTHER-DIXON. Ms. Dixon joined the Bank in 1989 as a member of the
Bank's financial acquisition team and managed the branch that originated from
the purchase of assets and liabilities of Industrial Bank from the FDIC. She was
promoted to Vice President and Internal Auditor and was responsible for creating
the Audit and Loan Review Department. She was later given the responsibility of
managing the operations, finance and facilities departments. Ms. Dixon was
promoted to Executive Vice President and Chief Operations Officer in 1997. She
also serves as the Chairperson of the EDP Steering Committee and the Year 2000
Committee. Ms. Dixon has extensive experience in the banking industry and began
her 28 year banking career in Houston in 1970. Ms. Dixon was born in England and
attended St. James University in Leeds before entering the British diplomatic
corps in Washington D.C. in 1968. Ms. Dixon is also a member of Financial Women
International.

ATTILIO F. GALLI. Mr. Galli joined the Company on July 29, 1998 as Senior
Vice President and Chief Financial Officer. Prior to joining the Company, Mr.
Galli was President and Chief Executive Officer of Alliance Financial of
Houston, a venture capital management company focusing on women and minority-
owned businesses. Prior to forming Alliance Financial of Houston, Mr. Galli was
an Executive Vice President of the Bank, where he was in charge of the Loan
Administration Department. Prior to his first association with the Bank, Mr.
Galli was Managing Director and founding partner of McKenna & Company, an
investment bank providing middle market companies with merger, acquisition and
private placement services. Prior to founding McKenna & Company, Mr. Galli had a
16-year career with Citicorp/ Citibank in successive promotional assignments
including Western U.S. Department Head for Financial Institutions Corporate
Finance, Southwest Regional Manager Wholesale Mortgage Bank, and Western U.S.
Regional Manager Oil and Gas Department. Mr. Galli's professional and civic
affiliations include service as a director and member of the Alternative Finance
Committee-Houston Credit Coalition, a member of the Alternative Finance
Committee-Houston Business Council, a member of the Houston

55
<PAGE>
Venture Capital Association, a member of the Steering Committee of the Houston
Technology Incubator, a member of the Board of Directors of the
Phillipine-American Chamber of Commerce and a member of Texas Small Business
United. Mr. Galli holds a Bachelors degree in Management from Louisiana State
University in New Orleans.

JANE W. KWAN. Ms. Kwan is a director of the Company and was elected a member
of the Board of Directors of the Bank in 1993. She is the Supervisor of
Purchasing and Inventory-Financial Management at the University of Texas M.D.
Anderson Cancer Center. During her 27 year tenure at the University of Texas
M.D. Anderson Cancer Center, she has held various positions including staff
pharmacist, Outpatient Pharmacy Supervisor and Coordinator of Pharmacy Alternate
Delivery Programs. She is licensed as a Registered Pharmacist in Georgia and
Texas and is also a licensed real estate broker in Texas. She received a
Bachelor of Science degree from the University of Georgia and a Masters degree
in Public Health from the University of Texas School of Public Health. Ms. Kwan
is involved in the Health Education for Asians League of Houston and is a
Coordinator for the Chinese Community Health Fair. Ms. Kwan is the wife of Mr.
William C.C. Kwan

WILLIAM C.C. KWAN. Mr. Kwan is a director of the Company and an organizing
director of the Bank. Mr. Kwan serves on the Audit Committee of the Company. He
is the General Manager of Jinshun Properties Co., Ltd., a real estate
development company. He has served as the President of William Kwan and
Associates and was the Chief Architect at John Chase Architects for sixteen
years. He received a Bachelors degree in Architectural Engineering from the Chu
Hai College in Hong Kong, a Bachelors degree in Architecture from the Georgia
Institute of Technology in Atlanta, Georgia and a Masters degree in Architecture
from Rice University, in Houston, Texas. Mr. Kwan has been a Registered
Architect in the State of Texas since 1975. Mr. Kwan is the husband of Ms. Jane
W. Kwan.

EDWARD LEE. Mr. Lee is a director of the Company and an organizing director
of the Bank. He is the President of Lafitte Frozen Foods Corporation, Hontex
Enterprises, Inc. and Bayou Dock Seafood, Inc., each of which is a seafood
related business. Mr. Lee served as Executive Vice President of Kam Kuo Food
Corporation in New York from 1975 to 1979. In 1974, Mr. Lee served as an Import
Manager at Dah Chong Hong Trading Company in New York. He received a certificate
in International Business Management from New York University and attended
Bariadu Medical College in India for two years. Mr. Lee is not related to Mr.
John Lee.

JOHN LEE. Mr. Lee is a director of the Company and an organizing director of
the Bank. Mr. Lee serves on the Audit Committee of the Company. He is an
Executive Vice President of Alpha Seafood Enterprises, Inc. and serves as the
Treasurer, Director and co-founder of United Oriental Capital Corporation, a
Specialized Small Business Investment Company. For six years, Mr. Lee served as
President and manager for numerous motels in the Houston area. Mr. Lee received
a Bachelors degree in Economics from National Chung Hsing University. Mr. Lee is
a member of the Taiwanese Chamber of Commerce of North America. Mr. Lee is the
brother-in-law of Mr. David Tai. Mr. Lee is not related to Mr. Edward Lee.

DAVID TAI. Mr. Tai is a director of the Company and was elected as a member
of the Board of Directors of the Bank in 1988. Mr. Tai is the Executive Vice
President and Secretary of the Company and Executive Vice President and Vice
Chairman of the Board of the Bank where he serves on the Directors Credit
Committee. Mr. Tai is a leader in the Asian-American community through his
active involvement in several organizations. He is currently the President of
the Taiwanese Chamber of Commerce of Greater Houston. He is the Executive
Advisor of the Taiwanese Chamber of Commerce of North America, an organization
that has members in 25 cities across the United States, Canada, and Mexico. He
is also active in the World Taiwanese Chamber of Commerce and serves as its
Executive Consular. He received a Bachelors of Business Administration degree
from Fu-Jen Catholic University in Taiwan in 1974 and received a Masters in
Business Administration degree from Murray State University in 1977. Mr. Tai is
a

56
<PAGE>
member of the Asian Realtors Association, the Asian Chamber of Commerce and the
United Way. He is a Counselor at the Taiwanese Cultural Center. Mr. Tai is the
brother-in-law of Mr. John Lee.

JOE TING. Mr. Ting is a director of the Company and was elected as a member
of the Board of Directors of the Bank in 1989. Mr. Ting serves on the
Compensation Committee of the Company and on the Executive Committee, Asset
Liability Committee and the Directors Credit Committee of the Bank. He is the
President of West Plaza Management, Inc., a real estate management company. Mr.
Ting has extensive knowledge in the plastic manufacturing industry and real
estate investments. Mr. Ting is a member of the Taiwanese Chamber of Commerce of
North America. He received a Masters in Business Administration degree from the
Florida Institute of Technology.

DON J. WANG. Mr. Wang is a director of the Company and an organizing
director of the Bank. Mr. Wang serves as Chairman of the Board and President of
the Company and Chairman of the Board and Chief Executive Officer of the Bank.
Mr. Wang has also been Chairman of the Board of New Era Life Insurance Company
since 1989. Mr. Wang served as President of the Taiwanese Chamber of Commerce of
North America in 1992 and currently sits on the Advisory Board. He served as a
Board member of the Greater Houston Partnership in 1994. Mr. Wang serves on the
Board of Directors of the Harris County Adult Detention Zone Corporation and the
Hope Shelter/Abused Children Program and the Advisory Board of the Chinese
Community Center. He is Chairman of the Chinese Senior Estates/Senior Housing
Project and Co-Chairman of the Asian and Pacific Island Division of the United
Way. Mr. Wang also serves on the Advisory Committee of Export-Import Bank of the
United States and is active in the Sam Houston Chapter of the Boy Scouts of
America and the Houston Image Group. On April 29, 1993, Mayor Bob Lanier
proclaimed "Don J. Wang Day" in Houston in honor of Mr. Wang's abundant
achievements in the realm of Asian community relations. He received a Bachelors
of Science degree from National Chung Hsing University and a Masters of Science
degree from Utah State University. Mr. Wang is the brother of Ms. Helen F. Chen.

Directors are elected for three year terms, classified into Classes I, II
and III. Ms. Chen and Messrs. Kwan and Edward Lee are Class I directors with
terms of office expiring on the date of the Company's annual meeting of
shareholders in 1999; Ms. Chu and Messrs. John Lee and Ting are Class II
directors with terms of office expiring on the date of the Company's annual
meeting in 2000; and Ms. Kwan and Messrs. Chen, Tai and Wang are Class III
directors with terms of office expiring on the date of the Company's annual
meeting of shareholders in 2001. Each officer of the Company is elected by the
Board of Directors of the Company and holds office until his successor is duly
elected and qualified or until his or her earlier death, resignation or removal.

The Board of Directors has established Audit and Compensation Committees.
The Audit Committee reviews the general scope of the audit conducted by the
Company's independent auditors and matters relating to the Company's internal
control systems. In performing its function, the Audit Committee meets
separately with representatives of the Company's independent auditors and with
representatives of senior management. The Audit Committee is composed of Ms. Chu
and Messrs. Kwan and John Lee, each of whom is an outside director.

The Compensation Committee is responsible for making recommendations to the
Board of Directors with respect to the compensation of the Company's executive
officers and is responsible for the establishment of policies dealing with
various compensation and employee benefit matters. The Compensation Committee
also administers the Company's stock option plans and makes recommendations to
the Board of Directors as to option grants to Company directors and employees
under such plans. The Compensation Committee is comprised of Ms. Chu and Messrs.
Chen and Ting, each of whom is an outside director. No officers of the Company
participate in Compensation Committee deliberations concerning their
compensation or other benefits.

57
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the formation of the Compensation Committee in 1998, matters
related to compensation, employee benefit matters and stock options were
considered by the Management Committee of the Bank, which included Messrs. Tai
and Wang. Messrs. Tai and Wang participated in determinations as to compensation
and grants of stock options to executive officers, including themselves. Final
determination regarding compensation and stock options was made by the Board of
Directors of the Bank.

DIRECTOR COMPENSATION

The Board of Directors of the Company anticipates that it will meet
quarterly. Outside directors of the Company receive a fee of $500 for attending
Company Board meetings. The Bank's Board of Directors meets monthly. Outside
directors of the Bank receive a fee of $500 for each meeting of the Bank's Board
of Directors attended and receive a fee of $300 for each Board Committee meeting
attended. Mr. Tommy F. Chen receives a fee of $3,000 per month for analysis and
evaluation of proposed loans secured by real estate.

Historically, the Company paid its directors, including directors who were
officers of the Company, an annual bonus based on the Company's performance. In
1997, 1996 and 1995, the Company paid bonuses to directors aggregating $195,672,
$159,737 and $146,600, respectively. In February of 1998, based on the Company's
1997 performance, the Company paid its directors, including directors who were
officers of the Company, a stock bonus with an aggregate value of $253,664.

The Company has replaced its director bonus policy with the Non-Employee
Director Stock Bonus Plan (the "Director Plan"). See "--Stock Plans." The
Company does not plan to pay cash bonuses to directors in the future.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
President, a former chief executive officer who served during 1997 and each of
the other two most highly compensated executive officers of the Company whose
compensation exceeds $100,000 (determined as of the end of the last fiscal year)
for the fiscal year ended December 31, 1997. The table does not include $40,551
paid in 1997 to each of Mr. Wang and Mr. Tai as 1996 director performance
bonuses and does not include $48,918 paid to Mr. Tioseco in 1997 as a 1996
performance bonus.

58
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION

<TABLE>
<CAPTION>
1997
OTHER ANNUAL ALL OTHER DIRECTOR
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2) BONUS
- -------------------------------------- ---------- --------- ---------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Don J. Wang,.......................... $ 105,000 $ -- $ 22,308 $ 5,092 $ 52,575(3)
Chairman of the Board and President
of the Company; Chairman of the
Board and Chief Executive Officer of
the Bank
David Tai,............................ 98,750 -- 10,465 4,369 52,575(3)
Executive Vice President and
Secretary of the Company; Executive
Vice President and Vice Chairman of
the Board of the Bank

Eduardo U. Tioseco(4),................ 118,917 -- 30,125 7,830 --
Former President and Chief Executive
Officer of the Bank
Jairo Cadena(5),...................... 97,250 12,000 17,492 5,070 --
Former Executive Vice President of
the Bank
</TABLE>

- ---------

(1) Represents the amount paid to compensate such officers for car allowance and
sick pay. Upon adoption of a new sick pay policy in 1998, the Company paid
all employees their cumulative accrued sick pay balances.

(2) Consists of contributions by the Company to the 401(k) Plan.

(3) In February 1998, 6,848 shares of stock with an aggregate value of $52,575
were issued to each of Mr. Wang and Mr. Tai as 1997 director performance
bonuses. See "--Director Compensation."

(4) Mr. Tioseco resigned as President and Chief Executive Officer of the Bank
effective in August of 1997.

(5) Mr. Cadena resigned as Executive Vice President of the Bank in June of 1998.

STOCK PLANS

The Company has four stock plans which were originally developed and
instituted by the Bank and assumed by the Company in the holding company
formation. Except for a non-qualified stock option plan for the six founding
directors of the Bank, each of the plans was approved by the shareholders of the
Bank in 1998.

The Company has outstanding options issued to the six founding directors of
the Bank to purchase 120,000 shares of Common Stock pursuant to a non-qualified
stock option plan ("Founding Director Plan"). Pursuant to the Founding Director
Plan, each of the six founding directors of the Bank (Tommy F. Chen, May P. Chu,
Edward Lee, John Lee, David Tai and Don J. Wang) were granted options to
purchase 20,000 shares of Common Stock at a price of $11.00 per share. The
options must be exercised by July 24, 2003. No additional options may be granted
under the Founding Director Plan.

59
<PAGE>
The Company's Director Plan authorizes the issuance of up to 60,000 shares
of Common Stock to the directors of the Company who do not serve as an officer
of the Company. Under the Director Plan, up to 12,000 shares of Common Stock may
be issued each year for a five year period if the Company achieves certain
return on equity ratios with no shares to be issued if the Company's return on
equity is below 13.0%. Shares will be allocated among the non-employee directors
with preference given to those directors who also serve on one or more
committees of the Board of Directors. There are currently no shares issued under
the Director Plan.

The Company's 1998 Employee Stock Purchase Plan ("Purchase Plan") authorizes
the offer and sale of up to 200,000 shares of Common Stock to employees of the
Company and its subsidiaries. Each year the Board of Directors will determine
the number of shares to be offered under the Purchase Plan; provided that in any
one year the offering may not exceed 20,000 shares. The offering price of each
share will be the closing price of a share of Common Stock on the business day
immediately prior to the commencement of such offering. In each offering, each
employee may purchase a number of whole shares of Common Stock that are equal to
10% of the employee's base salary divided by the offering price. Pursuant to the
Purchase Plan, the employee pays for the Common Stock through a two year payroll
deduction program.

The Company's 1998 Stock Incentive Plan ("Incentive Plan") authorizes the
issuance of up to 200,000 shares of Common Stock under both "non-qualified" and
"incentive stock" options and performance shares of Common Stock. Non-qualified
options and incentive stock options will be granted at no less than the fair
market value of the Common Stock and must be exercised within five years.
Performance shares are certificates representing the right to acquire shares of
Common Stock upon the satisfaction of performance goals established by the
Company. Holders of performance shares have all of the voting, dividend and
other rights of shareholders of the Company, subject to the terms of the award
agreement relating to such shares. If the performance goals are achieved, the
performance shares will vest and may be exchanged for shares of Common Stock. If
the performance goals are not achieved, the performance shares may be forfeited.
There are currently no options or performance shares granted under the Incentive
Plan.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. This statement established fair value based accounting and
reporting standards for all transactions in which a company acquires goods or
services by issuing its equity investments, which includes stock-based
compensation plans. Under Statement No. 123, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Fair value of stock options
is determined using an option- pricing model. This statement encourages
companies to adopt as prescribed the fair value based method of accounting to
recognize compensation expense for employee stock compensation plans. However,
it does not require the fair value based method to be adopted but a company must
comply with the disclosure requirements set forth in the statement. The Company
has continued to apply accounting in Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related Interpretations, and,
accordingly, will provide the pro forma disclosures of net income and earnings
per share.

OPTION GRANTS DURING 1997

The Company did not grant any options during 1997.

60
<PAGE>
STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES

The following table sets forth certain information concerning stock options
exercised during 1997 and the number and value of unexercised options held by
each of the named executives at December 31, 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS AT
SHARES DOLLAR AT DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED UPON VALUE -------------------------- --------------------------
NAME OPTION EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eduardo U. Tioseco (2)........... 79,860 $ 396,585 -- -- $ -- $ --
</TABLE>

- ---------

(1) Market value of the underlying securities at exercise date, minus the
exercise price.

(2) Mr. Tioseco resigned as President and Chief Executive Officer of the Bank
effective in August of 1997.

BENEFIT PLAN

The Company has established a defined contributory profit sharing plan
pursuant to Internal Revenue Code Section 401(k) covering substantially all
employees (the "Plan"). The Plan provides for pretax employee contributions of
up to 15.0% of annual compensation plus any additional discretionary after-tax
employee contributions. The Company matches participants' contributions to the
Plan of up to 4.0% of each participant's salary. Total Plan expenses charged to
the Company's operations for 1997, 1996 and 1995 were approximately $245,000,
$190,000 and $144,000, respectively. The Company has budgeted $250,000 for 1998
contributions.

INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

Many of the directors, executive officers and principal shareholders of the
Company (i.e., those who own 10% or more of the Common Stock) and their
associates, which include corporations, partnerships and other organizations in
which they are officers or partners or in which they and their immediate
families have at least a 5% interest, are customers of the Company. During 1997,
the Company made loans in the ordinary course of business to many of the
directors, executive officers and principal shareholders of the Company and
their associates, all of which were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons unaffiliated with the Company and did not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to directors, executive officers and principal shareholders of the Company
are subject to limitations contained in the Federal Reserve Act, the principal
effect of which is to require that extensions of credit by the Company to
executive officers, directors and principal shareholders satisfy the foregoing
standards. On June 30, 1998, all of such loans aggregated $2.8 million, which
was approximately 9.86% of the Company's Tier 1 capital at such date. The
Company expects to have such transactions or transactions on a similar basis
with its directors, executive officers and principal shareholders and their
associates in the future.

The Company leases space for its loan production office in New Orleans
pursuant to a lease arrangement with Mr. Edward Lee, a director of the Company.
The lease arrangement was entered into on an arm's length basis on substantially
the same terms as those prevailing at the time for comparable transactions with
unrelated persons.

61
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of the Common Stock offered hereby by (i) each director of the
Company, (ii) each person who is known by the Company to own beneficially 5% or
more of the Common Stock and (iii) all directors and executive officers as a
group. Unless otherwise indicated, each person has sole voting and dispositive
power over the shares indicated as owned by such person and the address of each
shareholder is the same as the address of the Company.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
NUMBER OF -------------------------------------
SHARES BEFORE OFFERING AFTER OFFERING(1)
------------- --------------- -----------------
<S> <C> <C> <C>
PRINCIPAL SHAREHOLDERS
- ---------------------------------------------
Metro Investment Group, Inc.(2).............. 484,128 8.56% 6.67%
Siah Chin Leong(3)........................... 460,000 8.14% 6.34%
Leslie Looi Meng(4).......................... 385,992 6.83% 5.32%
Shou Chiun Ting(5)........................... 371,768 6.57% 5.12%
Band & Co(6)................................. 293,664 5.19% 4.05%

DIRECTORS AND EXECUTIVE OFFICERS
- ---------------------------------------------
Helen F. Chen................................ 555,784(7) 9.83% 7.66%
Tommy F. Chen................................ 170,700(8) 3.01% 2.35%
May P. Chu................................... 108,064(9) 1.90% 1.49%
Jane W. Kwan................................. 20,436 * *
William C.C. Kwan............................ 21,376 * *
Edward Lee................................... 123,044(10) 2.17% 1.69%
John Lee..................................... 146,052(11) 2.58% 2.01%
David Tai.................................... 226,388(12) 3.99% 3.11%
Joe Ting..................................... 66,028(13) 1.17% *
Don J. Wang.................................. 507,780(14) 8.95% 6.98%
-------------
Directors and Executive Officers as a Group
(11 persons)............................... 1,945,652 34.41% 26.82%
</TABLE>

- ---------

* Indicates ownership which does not exceed 1.0%

(1) Assumes the issuance of 1,500,000 shares in the Offering.

(2) Metro Investment Group, Inc.'s address is 5511 Woodville Lane, Spring,
Texas 77379. The sole shareholder of Metro Investment Group, Inc. is Thomas
Wu. Director Helen F. Chen is the President of Metro Investment Group, Inc.

(3) Siah Chin Leong's address is 701-703 Asia Life Building, Jalan Seggett,
80000 Johor Bahru, Johor Darul Takzim, Malaysia.

(4) Leslie Looi Meng's address is Aloha Towers, No. 05-02, Block A, 1 Jalan
Kolam Air, 80100 Johor Bahru, Johor, Malaysia.

(5) Mr. Shou Chiun Ting's address is 15 Thornhill Oaks, Houston, Texas 77015.
Includes 168,076 held of record by Luxor Holding Corporation over which Mr.
Shou Chiun Ting has voting and investment control. Shou Chiun Ting is the
father of Director Joe Ting.

(6) Band & Co.'s address is c/o Heartland Advisors, 780 Milwaukee Street,
Milwaukee, Wisconsin 53202.

(7) Includes 484,128 shares held of record by Metro Investment Group, Inc. of
which Ms. Chen is the President.

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(8) Includes 20,000 shares which may be acquired under the Founding Director
Plan and 67,980 shares held of record by Veronica W. Chen, the wife of Mr.
Tommy F. Chen.

(9) Includes 20,000 shares which may be acquired under the Founding Director
Plan.

(10) Includes 20,000 shares which may be acquired under the Founding Director
Plan, 95,856 shares held of record by Betty Chu Lee, the wife of Mr.
Edward Lee and 4,176 shares held of record by the Theodore and Joia Lee
Trust, of which Mr. Edward Lee is the trustee.

(11) Includes 20,000 shares which may be acquired under the Founding Director
Plan, 25,456 shares held of record by Lee Su Huang, the sister of Mr. John
Lee, 13,312 shares held of record by Flora Yi Fang Lee, the daughter of
Mr. John Lee, and 13,312 shares held of record by Roger Chiche Lee, the
son of Mr. John Lee.

(12) Includes 20,000 shares which may be acquired under the Founding Director
Plan.

(13) Includes 2,200 shares held of record by Candace Ting, the daughter of Mr.
Joe Ting, 2,200 shares held of record by Joseph Ting, the son of Mr. Joe
Ting, and 2,200 shares held of record by Regina Ting, the daughter of Mr.
Joe Ting.

(14) Includes 20,000 shares which may be acquired under the Founding Director
Plan, 210,084 shares held of record by the Emily Wang Trust, 210,084
shares held of record by the Michael Wang Trust and 1,152 shares held of
record by Ming Wang, the wife of Mr. Don J. Wang.

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SUPERVISION AND REGULATION

The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, and not for the
protection of the bank holding company shareholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violations of laws and regulations.

The following description summarizes some of the laws to which the Company
and the Bank are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and are
qualified in their entirety by reference to such statutes and regulations.

THE COMPANY

The Company is a bank holding company registered under the BHCA, and it is
subject to supervision, regulation and examination by the Federal Reserve Board.
The BHCA and other federal laws subject bank holding companies to particular
restrictions on the types of activities in which they may engage, and to a range
of supervisory requirements and activities, including regulatory enforcement
actions for violations of laws and regulations.

REGULATORY RESTRICTIONS ON DIVIDENDS; SOURCE OF STRENGTH. It is the policy
of the Federal Reserve Board that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
banking subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each of its banking subsidiaries and
commit resources to their support. Such support may be required at times when,
absent this Federal Reserve Board policy, a holding company may not be inclined
to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.

In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.

ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank or
from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve Board, by order or regulation, to be so closely
related to banking or managing or controlling banks, as to be a proper incident
thereto. Some of the activities that have been determined by regulation to be
closely related to banking are making or servicing loans, performing certain
data processing services, acting as an investment or financial advisor to
certain investment trusts and investment companies, and providing securities
brokerage services. Other activities approved by the Federal Reserve Board
include consumer financial counseling, tax planning and tax preparation, futures
and options advisory services, check guaranty services, collection agency and
credit bureau services, and personal property appraisals. In approving
acquisitions by bank holding companies of companies engaged in banking-related
activities, the Federal Reserve Board considers a number of factors, and weighs
the expected benefits to the public (such as greater convenience and increased
competition or

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gains in efficiency) against the risks of possible adverse effects (such as
undue concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices). The Federal Reserve Board is also
empowered to differentiate between activities commenced de novo and activities
commenced through acquisition of a going concern.

SECURITIES ACTIVITIES. The Federal Reserve Board has approved applications
by bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to use
such subsidiaries to underwrite and deal in corporate debt and equity
securities.

SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve Board's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve Board prior notice of any redemption or repurchase of its own
equity securities, if the consideration to be paid, together with the
consideration paid for any repurchases or redemptions in the preceding year, is
equal to 10% or more of the company's consolidated net worth. The Federal
Reserve Board may oppose the transaction if it believes that the transaction
would constitute an unsafe or unsound practice or would violate any law or
regulation. Depending upon the circumstances, the Federal Reserve Board could
take the position that paying a dividend would constitute an unsafe or unsound
banking practice.

The Federal Reserve Board has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1,000,000 for each day
the activity continues.

ANTI-TYING RESTRICTIONS. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other services offered by a holding company or its affiliates.

CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve Board has adopted a
system using risk-based capital guidelines to evaluate the capital adequacy of
bank holding companies. Under the guidelines, specific categories of assets are
assigned different risk weights, based generally on the perceived credit risk of
the asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. The guidelines require a minimum total
risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist
of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2
capital. As of June 30, 1998, the Company's ratio of Tier 1 capital to total
risk-weighted assets was 8.71% and its ratio of total capital to total
risk-weighted assets was 10.12%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."

In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy of
bank holding companies. The leverage ratio is a company's Tier 1 capital divided
by its average total consolidated assets. Certain highly-rated bank holding
companies may maintain a minimum leverage ratio of 3.0%, but other bank holding
companies may be required to maintain a leverage ratio of up to 200 basis points
above the regulatory minimum. As of June 30, 1998, the Company's leverage ratio
was 6.34%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources."

The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital

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requirements for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve Board guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.

IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," it must submit a
capital restoration plan. The capital restoration plan will not be accepted by
the regulators unless each company having control of the undercapitalized
institution guarantees the subsidiary's compliance with the capital restoration
plan up to a certain specified amount. Any such guarantee from a depository
institution's holding company is entitled to a priority of payment in
bankruptcy.

The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it became
undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal Reserve
Board approval of proposed dividends, or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.

ACQUISITIONS BY BANK HOLDING COMPANIES. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire all or substantially all of the assets of any bank, or ownership
or control of any voting shares of any bank, if after such acquisition it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve Board is required to consider the financial and managerial resources and
future prospects of the bank holding company and the banks concerned, the
convenience and needs of the communities to be served, and various competitive
factors.

CONTROL ACQUISITIONS. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of 10% of more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act, such
as the Company, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the Company.

In addition, any company is required to obtain the approval of the Federal
Reserve Board under the BHCA before acquiring 25% (5% in the case of an acquiror
that is a bank holding company) or more of the outstanding Common Stock of the
Company, or otherwise obtaining control or a "controlling influence" over the
Company.

THE BANK

The Bank is a nationally chartered banking association, the deposits of
which are insured by the Bank Insurance Fund ("BIF") of the FDIC. The Bank's
primary regulator is the OCC. By virtue of the insurance of its deposits,
however, the Bank is also subject to supervision and regulation by the FDIC.
Such supervision and regulation subjects the Bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the OCC.
Because the Federal Reserve Board regulates the bank holding company parent of
the Bank, the Federal Reserve Board also has supervisory authority which
directly affects the Bank.

BRANCHING. The establishment of a branch must be approved by the OCC, which
considers a number of factors, including financial history, capital adequacy,
earnings prospects, character of management, needs of the community and
consistency with corporate powers.

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RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND INSIDERS. Transactions
between the Bank and its nonbanking subsidiaries, including the Company, are
subject to Section 23A of the Federal Reserve Act. In general, Section 23A
imposes limits on the amount of such transactions, and also requires certain
levels of collateral for loans to affiliated parties. It also limits the amount
of advances to third parties which are collateralized by the securities or
obligations of the Company or its subsidiaries.

Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between the Bank
and its affiliates be on terms substantially the same, or at least as favorable
to the Bank, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons.

The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must be
met before such a loan can be made. There is also an aggregate limitation on all
loans to insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the OCC may determine
that a lesser amount is appropriate. Insiders are subject to enforcement actions
for knowingly accepting loans in violation of applicable restrictions.

RESTRICTIONS ON DISTRIBUTION OF SUBSIDIARY BANK DIVIDENDS AND ASSETS. For
the foreseeable future it is anticipated that dividends paid by the Bank to the
Company will be the Company's principal source of operating funds. Capital
adequacy requirements serve to limit the amount of dividends that may be paid by
the Bank. Until capital surplus equals or exceeds capital stock, a national bank
must transfer to surplus 10% of its net income for the preceding four quarters
in the case of an annual dividend or 10% of its net income for the preceding two
quarters in the case of a quarterly or semiannual dividend. The Bank's capital
surplus exceeds its capital stock. Without prior approval, a national bank may
not declare a dividend if the total amount of all dividends, declared by the
bank in any calendar year exceeds the total of the bank's retained net income
for the current year and retained net income for the preceding two years. Under
federal law, the Bank cannot pay a dividend if, after paying the dividend, the
Bank will be "undercapitalized." The OCC may declare a dividend payment to be
unsafe and unsound even though the Bank would continue to meet its capital
requirements after the dividend.

Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.

EXAMINATIONS. The OCC periodically examines and evaluates insured banks.
Based upon such an evaluation, the OCC may revalue the assets of the institution
and require that it establish specific reserves to compensate for the difference
between the OCC-determined value and the book value of such assets.

AUDIT REPORTS. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal regulators. In some instances, the audit report of the institution's
holding company can be used to satisfy this requirement. Auditors must receive
examination reports, supervisory agreements and reports of enforcement actions.
In addition, financial statements prepared in accordance with generally accepted
accounting principles, management's certifications concerning responsibility for
the financial statements, internal controls and compliance with legal
requirements designated by the OCC, and an attestation by the auditor regarding
the statements of management relating to the internal controls must be
submitted. For institutions with total assets of more than $3 billion,
independent auditors may be required to review quarterly financial statements.
FDICIA requires

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that independent audit committees be formed, consisting of outside directors
only. The committees of such institutions must include members with experience
in banking or financial management, must have access to outside counsel, and
must not include representatives of large customers.

CAPITAL ADEQUACY REQUIREMENTS. Similar to the Federal Reserve Board's
requirements for bank holding companies, the OCC has adopted regulations
establishing minimum requirements for the capital adequacy of national banks.
The OCC may establish higher minimum requirements if, for example, a bank has
previously received special attention or has a high susceptibility to interest
rate risk.

The OCC's risk-based capital guidelines generally require national banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4.0% and
a ratio of total capital to total risk-weighted assets of 8.0%. As of June 30,
1998, the Bank's ratio of Tier 1 capital to total risk-weighted assets was 8.71%
and its ratio of total capital to total risk-weighted assets was 10.12%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of the Company--Capital Resources."

The OCC's leverage guidelines require national banks to maintain Tier 1
capital of no less than 5.0% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3.0% of average total
assets. As of June 30, 1998, the Bank's ratio of Tier 1 capital to average total
assets (leverage ratio) was 6.34%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation of the Company--Capital Resources."

CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk based
capital ratio of 10.0% or higher; a Tier 1 risk based capital ratio of 6.0% or
higher; a leverage ratio of 5.0% or higher; and is not subject to any written
agreement, order or directive requiring it to maintain a specific capital level
for any capital measure. An "adequately capitalized" bank has a total risk based
capital ratio of 8.0% or higher; a Tier 1 risk based capital ratio of 4.0% or
higher; a leverage ratio of 4.0% or higher (3.0% or higher if the bank was rated
a composite 1 in its most recent examination report and is not experiencing
significant growth); and does not meet the criteria for a well capitalized bank.
A bank is "under capitalized" if it fails to meet any one of the ratios required
to be adequately capitalized.

In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.

As an institution's capital decreases, the OCC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to mandated
capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management, and other restrictions. The OCC has only
very limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or conservator.

Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.

DEPOSIT INSURANCE ASSESSMENTS. The Bank must pay assessments to the FDIC
for federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification. Institutions assigned to higher-risk classifications (that is,
institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions

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that pose a lower risk. An institution's risk classification is assigned based
on its capital levels and the level of supervisory concern the institution poses
to the regulators. In addition, the FDIC can impose special assessments in
certain instances.

The FDIC established a process for raising or lowering all rates for insured
institutions semi-annually if conditions warrant a change. Under this new
system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in the
rate schedule outside the five cent range above or below the current schedule
can be made by the FDIC only after a full rulemaking with opportunity for public
comment.

On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the Savings Association
Insurance Fund ("SAIF") and to assure the payment of the Financing Corporation's
("FICO") bond obligations. Under this new act, banks insured under the BIF are
required to pay a portion of the interest due on bonds that were issued by FICO
to help shore up the ailing Federal Savings and Loan Insurance Corporation in
1987. The BIF rate must equal one-fifth of the SAIF rate through year-end 1999,
or until the insurance funds are merged, whichever occurs first. Thereafter BIF
and SAIF payers will be assessed pro rata for the FICO bond obligations. With
regard to the assessment for the FICO obligation, the current BIF rate is .0126%
of deposits and the SAIF rate is .0630% of deposits.

ENFORCEMENT POWERS. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations and
supervisory agreements could subject the Company or its banking subsidiaries, as
well as officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan.

BROKERED DEPOSIT RESTRICTIONS. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the FDIC,
and are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew, or roll over
brokered deposits.

CROSS-GUARANTEE PROVISIONS. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision which
generally makes commonly controlled insured depository institutions liable to
the FDIC for any losses incurred in connection with the failure of a commonly
controlled depository institution.

COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. These
regulations also provide for regulatory assessment of a bank's record in meeting
the needs of its service area when considering applications to establish
branches, merger applications and applications to acquire the assets and assume
the liabilities of another bank. FIRREA requires federal banking agencies to
make public a rating of a bank's performance under the CRA. In the case of a
bank holding company, the CRA performance record of the banks involved in the
transaction are reviewed in connection with the filing of an application to
acquire ownership or control of shares or assets of a bank or

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to merge with any other bank holding company. An unsatisfactory record can
substantially delay or block the transaction.

CONSUMER LAWS AND REGULATIONS. In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. The Bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.

INSTABILITY OF REGULATORY STRUCTURE

Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies and
limit the investments that a depository institution may make with insured funds,
is from time to time introduced in Congress. Such legislation may change banking
statutes and the operating environment of the Company and its banking
subsidiaries in substantial and unpredictable ways. The Company cannot determine
the ultimate effect that potential legislation, if enacted, or implementing
regulations with respect thereto, would have upon the financial condition or
results of operations of the Company or its subsidiaries.

EXPANDING ENFORCEMENT AUTHORITY

One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve Board and
OCC are possessed of extensive authority to police unsafe or unsound practices
and violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.

EFFECT ON ECONOMIC ENVIRONMENT

The policies of regulatory authorities, including the monetary policy of the
Federal Reserve Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Federal Reserve Board to affect the money supply are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings, and changes in reserve requirements against member bank deposits.
These means are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may affect
interest rates charged on loans or paid for deposits.

Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on the business and earnings of the Company and its subsidiaries
cannot be predicted.

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DESCRIPTION OF SECURITIES OF THE COMPANY

AUTHORIZED CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 2,000,000 shares
of preferred stock, $1.00 per share par value ("Preferred Stock"), issuable in
series, none of which are issued and outstanding and (ii) 20,000,000 shares of
Common Stock, $1.00 per share par value, of which 5,654,560 shares were issued
and outstanding as of June 30, 1998. The terms of any new series of Preferred
Stock may be fixed by the Board of Directors of the Company within certain
limits set by the Company's Articles of Incorporation. As of the date of this
Prospectus, an additional 120,000 shares of Common Stock were issuable upon
exercise of the Company's outstanding director stock options.

The following discussion of the terms and provisions of the Company's
capital stock is qualified in its entirety by reference to the Company's
Articles of Incorporation and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.

PREFERRED STOCK

The Company is authorized to issue 2,000,000 shares of Preferred Stock. The
Preferred Stock (or other securities convertible in whole or in part into
Preferred Stock) is available for issuance from time to time for various
purposes as determined by the Company's Board of Directors, including, without
limitation, making future acquisitions, raising additional equity capital and
financing. Subject to certain limits set by the Company's Articles of
Incorporation, the Preferred Stock (or such convertible securities) may be
issued on such terms and conditions, and at such times and in such situations,
as the Board of Directors in its sole discretion determines to be appropriate,
without any further approval or action by the shareholders (unless otherwise
required by laws, rules, regulations or agreements applicable to the Company).

Moreover, except as otherwise limited by the Articles of Incorporation or
applicable laws, rules or regulations, the Board of Directors has the sole
authority to determine the relative rights and preferences of the Preferred
Stock and any series thereof without shareholder approval. The Company's
Articles of Incorporation require all shares of Preferred Stock to be identical,
except as to the following characteristics, which may vary between different
series of Preferred Stock:

(i) dividend rate, preference of dividend with respect to any other class or
series of stock, and cumulatively, non-cumulatively or partial
cumulatively of dividends;

(ii) redemption price and terms;

(iii) sinking fund provisions for the redemption or purchase of shares;

(iv) the amount payable upon shares in the event of voluntary or involuntary
liquidation;

(v) the terms and conditions on which shares may be converted, if the shares
of any series are issued with the privilege of conversion;

(vi) voting rights; and

(vii) such other powers, preferences and rights as the Board of Directors
shall determine.

The Board of Directors does not intend to seek shareholder approval prior to
any issuance of Preferred Stock or any series thereof, unless otherwise required
by law. Under the Texas Business Corporation Act ("TBCA"), shareholder approval
prior to the issuance of shares of Common Stock or Preferred Stock is required
in connection with certain mergers. Frequently, opportunities arise that require
prompt action, such as the possible acquisition of a property or business or the
private sale of securities, and it is the belief of the Board of Directors that
the delay necessary for shareholder approval of a specific issuance could be to
the detriment of the Company and its shareholders. The Board of Directors does
not

71
<PAGE>
intend to issue any shares of Common Stock or Preferred Stock except on terms
which the Board of Directors deems to be in the best interests of the Company
and its then existing shareholders.

Although the Preferred Stock could be deemed to have an anti-takeover
effect, the Board of Directors is not aware of any takeover efforts. If a
hostile takeover situation should arise, shares of Preferred Stock could be
issued to purchasers sympathetic with the Company's management or others in such
a way as to render more difficult or to discourage a merger, tender offer, proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.

The effects of the issuance of the Preferred Stock on the holders of Common
Stock could include, among other things, (i) reduction of the amount otherwise
available for payments of dividends on Common Stock if dividends are payable on
the series of Preferred Stock; (ii) restrictions on dividends on Common Stock if
dividends on the series of Preferred Stock are in arrears; (iii) dilution of the
voting power of Common Stock if the series of Preferred Stock has voting rights,
including a possible "veto" power if the series of Preferred Stock has class
voting rights; (iv) dilution of the equity interest of holders of Common Stock
if the series of Preferred Stock is convertible, and is converted, into Common
Stock; and (v) restrictions on the rights of holders of Common Stock to share in
the Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the holders of the series of Preferred Stock. Holders of
Common Stock have no preemptive rights to purchase or otherwise acquire any
Preferred Stock that may be issued.

COMMON STOCK

The holders of the Common Stock are entitled to one vote for each share of
Common Stock owned. Except as expressly provided by law and except for any
voting rights which may be conferred by the Board of Directors on any shares of
Preferred Stock issued, all voting power is in the Common Stock. Holders of
Common Stock may not cumulate their votes for the election of directors. Holders
of Common Stock do not have preemptive rights to acquire any additional,
unissued or treasury shares of the Company, or securities of the Company
convertible into or carrying a right to subscribe for or acquire shares of the
Company. Holders of Common Stock will be entitled to receive dividends out of
funds legally available therefor, if and when properly declared by the Board of
Directors. See "Risk Factors--Restrictions on Ability to Pay Dividends" and
"Supervision and Regulation."

On the liquidation of the Company, the holders of Common Stock are entitled
to share pro rata in any distribution of the assets of the Company, after the
holders of shares of Preferred Stock have received the liquidation preference of
their shares plus any cumulated but unpaid dividends (whether or not earned or
declared), if any, and after all other indebtedness of the Company has been
retired.

TEXAS LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS

Certain provisions of Texas law, the Company's Articles of Incorporation and
the Company's Bylaws could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions are intended to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to negotiate first
with the Company.

The Company is subject to the provisions of the Texas Business Combination
Law (Articles 13.01 through 13.08 of the TBCA), which provides that a Texas
corporation such as the Company may not engage in certain business combinations,
including mergers, consolidations and asset sales, with a person, or an
affiliate or associate of such person, who is an "Affiliated Shareholder"
(generally defined as the holder of 20% or more of the corporation's voting
shares) for a period of three years from the date such person became an
Affiliated Shareholder unless: (i) the business combination or purchase or
acquisition of shares made by the Affiliated Shareholder was approved by the
board of directors of the corporation before the Affiliated Shareholder became
an Affiliated Shareholder or (ii) the business combination was

72
<PAGE>
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding voting shares of the corporation not beneficially owned by the
Affiliated Shareholder, at a meeting of shareholders called for that purpose
(and not by written consent), not less than six months after the Affiliated
Shareholder became an Affiliated Shareholder. The Texas Business Combination Law
is not applicable to: (i) the business combination of a corporation: (a) where
the corporation's original charter or bylaws contain a provision expressly
electing not to be governed by the Texas Business Combination Law, (b) that
adopts an amendment to its charter or bylaws before December 31, 1997, expressly
electing not to be governed by the Texas Business Combination Law, or (c) that
adopts an amendment to its charter or bylaws after December 31, 1997, by the
affirmative vote of the holders, other than Affiliated Shareholders, of at least
two-thirds of the outstanding voting shares of the corporation, expressly
electing not to be governed by the Texas Business Combination Law; (ii) a
business combination of a corporation with an Affiliated Shareholder that became
an Affiliated Shareholder inadvertently, if the Affiliated Shareholder: (a) as
soon as practicable divests itself of enough shares to no longer be an
Affiliated Shareholder and (b) would not at any time within the three year
period preceding the announcement of the business combination have been an
Affiliated Shareholder but for the inadvertent acquisition; (iii) a business
combination with an Affiliated Shareholder that was the beneficial owner of 20%
or more of the outstanding voting shares of the corporation on December 31,
1996, and continuously until the announcement date of the business combination;
(iv) a business combination with an Affiliated Shareholder who became an
Affiliated Shareholder through a transfer of shares of the corporation by will
or intestate succession and continuously was such an Affiliated Shareholder
until the announcement date of the business combination; and (v) a business
combination of a corporation with a wholly owned subsidiary if the subsidiary is
not an affiliate or associate of the Affiliated Shareholder other than by reason
of the Affiliated Shareholder's beneficial ownership of the voting shares of the
corporation. Neither the Articles of Incorporation nor the Bylaws of the Company
contain any provision expressly providing that the Company will not be subject
to the Texas Business Combination Law. The Texas Business Combination Law may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company, even if such event would be beneficial to the
Company's shareholders.

The following discussion is a summary of certain material provisions of the
Company's Articles of Incorporation and the Company's Bylaws, copies of which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.

CLASSIFIED BOARD OF DIRECTORS. Under the Company's Bylaws, the Board of
Directors is classified into three classes, with the directors being elected for
staggered, three-year terms. The classification of the Company's Board of
Directors will have the effect of making it more difficult to change the
composition of the Board of Directors, because at least two annual meetings of
the shareholders would be required to change the control of the Board of
Directors rather than one. In addition, the Bylaws provide that directors may be
removed by the shareholders only for cause and that vacancies on the Board of
Directors may be filled by the remaining directors.

ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND NOMINATIONS. The Company's
Bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of shareholders of the Company (the "Shareholder Notice
Procedure"). The Shareholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a shareholder who has
given timely written notice to the Secretary of the Company prior to the meeting
at which directors are to be elected, will be eligible for election as directors
of the Company and that, at an annual meeting, only such business may be
conducted as has been brought before the meeting by, or at the direction of, the
Board of Directors or by a shareholder who has given timely written notice to
the Secretary of the Company of such shareholder's intention to bring such
business before such meeting.

Under the Shareholder Notice Procedure, for notice of shareholder
nominations or other business to be made at an annual meeting to be timely, such
notice must be received by the Company not less than 60

73
<PAGE>
days prior to the meeting. A shareholder's notice to the Company proposing to
nominate a person for election as a director or proposing other business must
contain certain information specified in the Bylaws, including the identity and
address of the nominating shareholder, a representation that the shareholder is
a record holder of stock of the Company entitled to vote at the meeting and
information regarding each proposed nominee or each proposed matter of business
that would be required under the federal securities laws to be included in a
proxy statement soliciting proxies for the proposed nominee.

The Shareholder Notice Procedure may have the effect of precluding a contest
for the election of directors or the consideration of shareholder proposals if
the proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareholders.

SPECIAL MEETINGS OF SHAREHOLDERS. The Articles of Incorporation provide
that special meetings of shareholders can be called by shareholders only at the
request of the holders of not less than one-half of the outstanding shares of
stock entitled to vote at the meeting.

REDUCED SHAREHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS. The Company's
Articles of Incorporation provide that, notwithstanding any provision of the
TBCA that would require approval of more than a majority of the shares entitled
to vote on such matter and present or represented by proxy at the meeting, the
vote or approval of a majority of the shares of the Company's stock entitled to
vote on such matter will be sufficient to approve such matter. This provision
reduces the required shareholder approval level for certain actions such as a
merger, a consolidation, a share exchange, certain sales of substantially all of
the Company's assets, a dissolution or an amendment to the Company's Articles of
Incorporation, each of which would otherwise require two-thirds shareholder
approval under Texas law.

NO ACTION BY WRITTEN CONSENT WITHOUT UNANIMOUS WRITTEN CONSENT. Under the
TBCA, no action required or permitted to be taken at an annual or special
meeting of shareholders may be taken by written consent in lieu of a meeting of
shareholders without the unanimous written consent of all shareholders unless
the articles of incorporation specifically allow action by less than unanimous
written consent. The Company's Articles of Incorporation do not contain such a
provision.

AMENDMENT OF BYLAWS. The Company's Bylaws provide that the Bylaws may be
amended only by the Board of Directors. Shareholders do not have the power to
amend the Company Bylaws.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement among the
Company and Underwriter, the Underwriter has agreed to purchase from the Company
1,600,000 shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.

The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all such shares of the Common Stock if any of such shares are
purchased. The Underwriter is obligated to take and pay for all of the shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any are taken.

The Company has been advised by the Underwriter that the Underwriter
proposes to offer such shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ per share to certain other dealers. After the initial public offering,
the offering price and other selling terms may be changed by the Underwriter.

74
<PAGE>
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriter an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to 240,000 additional shares of Common Stock at the
public offering price, less the underwriting discounts and commissions set forth
on the cover page of this Prospectus, solely to cover over-allotments. To the
extent that the Underwriter exercises such option, the Underwriter will become
obligated, subject to certain conditions, to purchase such additional shares.

The Company, each of its directors and executive officers, and certain other
shareholders of the Company have agreed not to sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Underwriter, except that the
Company may issue shares of Common Stock upon the exercise of currently
outstanding options. See "Risk Factors--Shares Available for Future Sale."

The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which it exercises discretionary authority.

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.

Until the distribution of the Common Stock is completed, rules of the
Commission (as defined herein) may limit the ability of the Underwriter to bid
for and purchase the Common Stock. As an exception to these rules, the
Underwriter is permitted to engage in certain transactions that stabilize the
price of the Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Stock.

If the Underwriter creates a short position in the Common Stock in
connection with the Offering, i.e., if it sells a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriter may reduce the short position by purchasing shares of Common
Stock in the open market. The Underwriter may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor the Underwriter make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriter make any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.

The Underwriter and dealers may engage in passive market making transactions
in the shares of Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriter and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the

75
<PAGE>
Company and the Underwriter. Among the factors considered in such negotiations
are prevailing market and general economic conditions, the market
capitalizations, trading histories and performance of other traded companies
that the Company and the Underwriter believe to be comparable to the Company,
the results of operations of the Company in recent periods, the current
financial position of the Company and estimates of the business potential of the
Company. Additionally, consideration will be given to the general status of the
securities market, the market conditions for new issues of securities and the
demand for securities of comparable companies at the time the Offering was made.

An application has been made to have the Common Stock approved for quotation
on the Nasdaq/ National Market.

LEGAL MATTERS

The validity of the shares of Common Stock to be issued by the Company will
be passed upon by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal
matters with respect to the Common Stock offered hereby will be passed upon for
the Underwriter by Thacher Proffitt & Wood, Washington, D.C.

EXPERTS

The financial statements as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-1 (the "Registration Statement") under the Securities Act, with
respect to the offer and sale of Common Stock pursuant to this Prospectus. This
Prospectus, filed as a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the Commission
and reference is hereby made to such omitted information. Statements made in
this Prospectus concerning the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement are summaries of the
terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511. For further
information pertaining to the Common Stock offered by this Prospectus and the
Company, reference is made to the Registration Statement. The Registration
Statement and other information filed by the Company with the Commission are
also available at the Commission's World Wide Web site on the Internet at
http://www.sec.gov.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.

76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

METROCORP BANCSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2

Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 and 1996................. F-3

Consolidated Statements of Income for the Six Months Ended June 30, 1998 and 1997 (unaudited) and for the
Years Ended December 31, 1997, 1996 and 1995............................................................. F-4

Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 1998 and 1997 (unaudited)
and for the Years Ended December 31, 1997, 1996 and 1995................................................. F-5

Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 1998
(unaudited) and for the Years Ended December 31, 1997, 1996 and 1995..................................... F-6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (unaudited) and for
the Years Ended December 31, 1997, 1996 and 1995......................................................... F-7

Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of

MetroCorp Bancshares, Inc.

The recapitalization described in Note 18 to the financial statements has
not been consummated at August 26, 1998. When it has been consummated, we will
be in a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of comprehensive income, of changes
in shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of MetroCorp Bancshares, Inc. and subsidiaries
(the Company) at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."

PricewaterhouseCoopers LLP

Houston, Texas

February 20, 1998 (except for Note 18, as to which
the date is , 1998)

F-2
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks.................................... $ 20,063 $ 17,979 $ 15,219
Federal funds sold and other temporary investments......... 23,485 13,239 14,774
----------- --------- ---------
Total cash and cash equivalents.......................... 43,548 31,218 29,993
Investments available-for-sale............................... 45,475 41,612 25,626
Investments held-to-maturity................................. 62,114 71,012 78,054
Loans, net................................................... 360,966 345,341 278,456
Premises and equipment, net.................................. 8,013 8,073 8,071
Accrued interest receivable.................................. 3,269 3,141 2,817
Deferred income taxes........................................ 2,557 1,630 1,171
Due from customers on acceptances............................ 770 1,460 1,317
Other real estate............................................ 136 606 739
Other assets................................................. 776 958 743
----------- --------- ---------
Total assets............................................. $ 527,624 $ 505,051 $ 426,987
----------- --------- ---------
----------- --------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing........................................ $ 83,500 $ 74,590 $ 59,369
Interest-bearing........................................... 403,527 371,269 321,920
----------- --------- ---------
Total deposits........................................... 487,027 445,859 381,289
Federal funds purchased...................................... -- 5,000 5,000
Other borrowings............................................. 132 16,611 9,566
Accrued interest payable..................................... 1,056 1,036 924
Income taxes payable......................................... 92 1,066 --
Acceptances outstanding...................................... 770 1,460 1,317
Other liabilities............................................ 4,508 3,513 3,493
----------- --------- ---------
Total liabilities........................................ 493,585 474,545 401,589
----------- --------- ---------
Commitments and contingencies (Note 14)...................... -- -- --
----------- --------- ---------
Shareholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized, none of which are issued and outstanding..... -- -- --
----------- --------- ---------
Common stock, $1.00 par value, 20,000,000 shares
authorized; 5,654,560, 5,556,248 and 5,364,168 shares
issued and outstanding, respectively..................... 5,655 5,655 5,364
Additional paid-in capital................................. 12,848 12,795 11,804
Retained earnings.......................................... 14,816 12,003 7,835
Accumulated other comprehensive income..................... 720 808 395
Treasury stock, at cost (98,312 shares at December 31,
1997).................................................... -- (755) --
----------- --------- ---------
Total shareholders' equity............................... 34,039 30,506 25,398
----------- --------- ---------
Total liabilities and shareholders' equity............... $ 527,624 $ 505,051 $ 426,987
----------- --------- ---------
----------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans.................................................... $ 19,014 $ 15,541 $ 33,028 $ 23,884 $ 15,876
Securities:
Taxable................................................ 3,053 2,920 6,161 6,103 5,837
Tax-exempt............................................. 478 483 968 817 779
Federal funds sold and other temporary investments....... 774 467 998 719 573
--------- --------- --------- --------- ---------
Total interest income................................ 23,319 19,411 41,155 31,523 23,065
--------- --------- --------- --------- ---------
Interest expense:
Time deposits............................................ 7,704 6,534 13,685 10,275 6,709
Demand and savings deposits.............................. 1,977 1,596 3,430 3,010 2,162
Other borrowings......................................... 328 418 1,023 642 769
--------- --------- --------- --------- ---------
Total interest expense............................... 10,009 8,548 18,138 13,927 9,640
--------- --------- --------- --------- ---------
Net interest income........................................ 13,310 10,863 23,017 17,596 13,425
Provision for loan losses.................................. 1,889 964 3,350 2,118 792
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses........ 11,421 9,899 19,667 15,478 12,633
--------- --------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts...................... 1,469 1,059 2,248 1,981 2,083
Other loan-related fees.................................. 756 593 1,440 972 428
Letters of credit commissions and fees................... 182 167 357 359 330
Gain on sale of investment securities, net............... -- 78 189 56 62
Other noninterest income................................. 100 69 157 78 --
--------- --------- --------- --------- ---------
Total noninterest income............................. 2,507 1,966 4,391 3,446 2,903
--------- --------- --------- --------- ---------
Noninterest expense:
Employee compensation and benefits....................... 4,746 4,313 8,940 8,048 5,932
Occupancy................................................ 2,279 1,846 3,843 3,330 1,965
Other real estate, net................................... 166 178 474 199 77
Data processing.......................................... 290 206 465 283 369
Professional fees........................................ 211 225 431 346 274
Advertising.............................................. 175 176 332 308 260
Other noninterest expense................................ 2,020 1,836 3,611 3,588 2,968
--------- --------- --------- --------- ---------
Total noninterest expense............................ 9,887 8,780 18,096 16,102 11,845
--------- --------- --------- --------- ---------
Income before provision for income taxes................... 4,041 3,085 5,962 2,822 3,691
Provision for income taxes................................. 1,228 901 1,794 809 1,091
--------- --------- --------- --------- ---------
Net income................................................. $ 2,813 $ 2,184 $ 4,168 $ 2,013 $ 2,600
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share:
Basic.................................................... $ .50 $ .39 $ .75 $ .38 $ .52
Diluted.................................................. $ .50 $ .39 $ .74 $ .37 $ .51
Weighted average shares outstanding:
Basic.................................................... 5,655 5,585 5,581 5,364 5,015
Diluted.................................................. 5,655 5,655 5,616 5,444 5,104
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY
---------------------- PAID-IN RETAINED COMPREHENSIVE STOCK, AT
SHARES AT PAR CAPITAL EARNINGS INCOME (LOSS) COST TOTAL
----------- --------- ----------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995........... 4,656 $ 4,656 $ 9,371 $ 5,206 $ (638) $ -- $ 18,595
Stock dividend....................... 464 464 1,520 (1,984) -- -- --
Issuance of common stock............. 216 216 874 -- -- -- 1,090
Exercise of stock options and related
tax benefit........................ 28 28 39 -- -- -- 67
Other comprehensive income........... -- -- -- -- 1,167 -- 1,167
Net income........................... -- -- -- 2,600 -- -- 2,600
----- --------- ----------- --------- ------ ----- ---------
Balance at December 31, 1995......... 5,364 5,364 11,804 5,822 529 -- 23,519
Other comprehensive loss............. -- -- -- -- (134) -- (134)
Net income........................... -- -- -- 2,013 -- -- 2,013
----- --------- ----------- --------- ------ ----- ---------
Balance at December 31, 1996......... 5,364 5,364 11,804 7,835 395 -- 25,398
Issuance of common stock............. 211 211 789 -- -- -- 1,000
Repurchase of common stock........... (99) -- -- -- -- (755) (755)
Exercise of stock options and related
tax benefit........................ 80 80 202 -- -- -- 282
Other comprehensive income........... -- -- -- -- 413 -- 413
Net income........................... -- -- -- 4,168 -- -- 4,168
----- --------- ----------- --------- ------ ----- ---------
Balance at December 31, 1997......... 5,556 5,655 12,795 12,003 808 (755) 30,506
Repurchase of common stock
(unaudited)........................ (26) -- -- -- -- (204) (204)
Shares issued for incentive plans
(unaudited)........................ 33 -- -- -- -- 254 254
Sale of treasury stock (unaudited)... 92 -- 53 -- -- 705 758
Other comprehensive loss
(unaudited)........................ -- -- -- -- (88) -- (88)
Net income (unaudited)............... -- -- -- 2,813 -- -- 2,813
----- --------- ----------- --------- ------ ----- ---------
Balance at June 30, 1998
(unaudited)........................ 5,655 $ 5,655 $ 12,848 $ 14,816 $ 720 $ -- $ 34,039
----- --------- ----------- --------- ------ ----- ---------
----- --------- ----------- --------- ------ ----- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:--
Net income.................................................. $ 2,813 $ 2,184 $ 4,168 $ 2,013 $ 2,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................................. 990 821 1,689 1,391 646
Provision for loan losses................................. 1,889 964 3,350 2,118 792
Gain on security sales, net............................... -- (78) (189) (56) (62)
Loss (gain) on sale of other real estate.................. 146 10 (28) 35 (77)
Deferred income taxes..................................... (877) (874) (660) (361) (308)
Changes in:
Accrued interest receivable............................. (128) (337) (324) (696) (421)
Other assets............................................ 231 (250) (253) 56 (491)
Accrued interest payable................................ 20 64 112 115 328
Deferred loan fees...................................... 46 299 1,010 855 520
Other liabilities....................................... 995 (17) 20 891 1,284
Income taxes payable.................................... (974) 453 1,066 (361) 361
---------- ---------- ---------- ----------- ----------
Net cash provided by operating activities............. 5,151 3,239 9,961 6,000 5,172
---------- ---------- ---------- ----------- ----------
Cash flows from investing activities:
Purchases of investments available-for-sale............... (7,806) (20,651) (26,212) (12,709) (10,137)
Proceeds from maturities of investments available-
for-sale................................................ 3,798 6,090 11,021 16,390 40,335
Purchases of investments held-to-maturity................. -- (4,974) (4,975) (13,248) (50,433)
Proceeds from maturities of investments
held-to-maturity........................................ 8,905 5,798 12,031 16,489 3,694
Net change in loans....................................... (17,560) (25,192) (73,591) (106,179) (52,870)
Proceeds from sales of other real estate.................. 275 270 2,539 138 597
Purchases of premises and equipment....................... (930) (1,050) (1,691) (3,411) (4,511)
---------- ---------- ---------- ----------- ----------
Net cash used by investing activities................... (13,318) (39,709) (80,878) (102,530) (73,325)
---------- ---------- ---------- ----------- ----------
Cash flows from financing activities:
Net change in:
Deposits.................................................. 41,168 33,167 64,570 96,136 88,018
Other borrowings.......................................... (16,479) 9,815 7,045 293 (3,319)
Federal funds purchased................................... (5,000) (5,000) -- 5,000 --
Proceeds from issuance of common stock...................... -- 1,000 1,282 -- 1,157
Treasury stock purchased.................................... 808 216 (755) -- --
---------- ---------- ---------- ----------- ----------
Net cash provided by financing activities............... 20,497 39,198 72,142 101,429 85,856
---------- ---------- ---------- ----------- ----------
Net increase in cash and cash equivalents..................... 12,330 2,728 1,225 4,899 17,703
Cash and cash equivalents at beginning of period.............. 31,218 29,993 29,993 25,094 7,391
---------- ---------- ---------- ----------- ----------
Cash and cash equivalents at end of period.................... $ 43,548 $ 32,721 $ 31,218 $ 29,993 $ 25,094
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of MetroCorp Bancshares, Inc. (the
"Company") include the accounts of the Company and its wholly-owned subsidiary,
MetroBank National Association (the "Bank") (see Note 18). The Bank was formed
in 1987 and is engaged in commercial banking activities through its ten branches
in Houston and Dallas, Texas, and its loan production office in New Orleans,
Louisiana. In August 1993, the Bank formed a wholly-owned subsidiary, Island
Commercial Corporation (ICC), to own and operate certain foreclosed properties.
In February 1994, the Bank formed a wholly-owned subsidiary, Advantage Finance
Corporation (AFC), to purchase and finance accounts receivable.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets, liabilities, revenues
and expenses, as well as the disclosure of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date.

INTERIM FINANCIAL INFORMATION

The unaudited consolidated financial statements as of June 30, 1998 and for
the six months ended June 30, 1998 and 1997 have not been audited but, in the
opinion of management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of results for the interim
periods. The results of operations for the six months ended June 30, 1998 and
1997 are not necessarily indicative of the results for the full year.

The following is a summary of the significant accounting policies followed
in the preparation of the consolidated financial statements. The accounting
policies and practices of the Company conform to generally accepted accounting
principles and to prevailing industry practices and, where applicable, the
accounting and reporting guidelines prescribed by bank regulatory authorities.

PRINCIPLES OF CONSOLIDATION

All significant intercompany accounts and transactions are eliminated in
consolidation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, amounts due from banks,
federal funds sold, and other temporary investments with original maturities of
less than three months.

INVESTMENT SECURITIES

The Company segregates its investment portfolio in accordance with the
requirements of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", as either investments
held-to-maturity or investments available-for-sale. All investment transactions
are recorded on a trade date basis.

F-8
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
Investments in securities for which the Company has both the ability and
intent to hold to maturity are classified as investments held-to-maturity and
are stated at amortized cost. Amortization of premiums and accretion of
discounts are recognized as adjustments to interest income using the
effective-interest method.

Investments in securities which management believes may be sold prior to
maturity are classified as investments available-for-sale and are stated at fair
value. Unrealized net gains and losses, net of the associated deferred income
tax effect, are excluded from income and reported as a separated component of
shareholders' equity in "Accumulated other comprehensive income". Realized gains
and losses from sales of investments available-for-sale are recognized through
income at the time of sale using the specific identification method.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are reported at the principal amount outstanding, reduced by unearned
discounts, net deferred loan fees and an allowance for loan losses. Unearned
income on installment loans is recognized using the effective interest method
over the term of the loan. Interest on other loans is calculated using the
simple interest method on the daily principal amount outstanding. Nonrefundable
service charges for the origination of loans, net of direct costs, are deferred
and amortized over the terms of the related loans using a method which
approximates the effective-interest method.

Loans are placed on nonaccrual status when principal or interest is past due
more than 90 days or when, in management's opinion, collection of principal and
interest is not likely to be made in accordance with a loan's contractual terms.
Interest accrued but not collected at the date a loan is placed on nonaccrual
status is reversed against interest income. In addition, the amortization of
deferred loan fees is suspended when a loan is placed on nonaccrual status.
Interest income on nonaccrual loans is recognized only to the extent received in
cash; however, where there is doubt regarding the ultimate collectibility of the
loan principal, cash receipts, whether designated as principal or interest, are
thereafter applied to reduce the principal balance of the loan. Loans are
restored to accrual status only when interest and principal payments are brought
current and, in management's judgment, future payments are reasonably assured.

The Bank applies Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan--Income Recognition and Disclosures". Under Statement No. 114, as
amended, a loan is considered impaired when, based on current information, it is
probable that the borrower will be unable to pay contractual interest or
principal payments as scheduled in the loan agreement. Statement No. 118 permits
a creditor to use existing methods for recognizing interest income on impaired
loans. The Bank recognizes interest income on impaired loans pursuant to the
discussion above for nonaccrual loans.

The allowance for loan losses provides for the risk of losses inherent in
the lending process. The allowance for loan losses is based on periodic reviews
and analyses of the loan portfolio which include consideration of such factors
as the risk rating of individual credits, the size and diversity of the
portfolio, economic conditions, prior loss experience and results of periodic
credit reviews of the portfolio. The

F-9
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
allowance for loan losses is increased by provisions for loan losses charged
against income and reduced by charge-offs, net of recoveries. In management's
judgment, the allowance for loan losses is considered adequate to absorb losses
inherent in the loan portfolio.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation.
For financial accounting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Expenditures
for maintenance and repairs which do not extend the life of bank premises and
equipment are charged to operations as incurred.

OTHER REAL ESTATE

Other real estate consists of properties acquired through a foreclosure
proceeding or acceptance of a deed in lieu of foreclosure. These properties are
carried at the lower of cost or fair value minus estimated costs to sell based
on appraised value. Operating expenses, net of related revenue and gain and
losses on sale of such assets, are reported as other real estate expense.

OTHER BORROWINGS

Other borrowings include U.S. Treasury tax note option accounts with
maturities of 14 days or less and Federal Home Loan Bank (FHLB) borrowings.

INCOME TAXES

The Bank accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Statement No. 109
provides for an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Bank's financial statements or tax
returns. When management determines that it is more likely than not that a
deferred tax asset will not be realized, a valuation allowance is established.
In estimating future tax consequences, Statement No. 109 generally considers all
expected future events other than enactments of changes in tax laws or rates.

EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income
available for common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
by dividing net earnings available for common shareholders by the weighted
average number of common and potentially dilutive common shares. Stock options
may be potentially dilutive common shares and are therefore considered in the
earnings per share calculation, if dilutive. The number of potentially dilutive
common shares is determined using the treasury stock method. Earnings per common
share have been computed based on weighted average number of shares outstanding
after giving retroactive effect to the 4-for-1 stock exchange in connection with
the holding company formation (see Note 18).

F-10
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
INTEREST RATE RISK MANAGEMENT

The operations of the Bank are subject to the risk of interest rate
fluctuations to the extent that interest-bearing assets and interest-bearing
liabilities mature or reprice at different times or in differing amounts. Risk
management activities are aimed at optimizing net interest income, given a level
of interest rate risk consistent with the Bank's business strategies.

Asset liability management activities are conducted in the context of the
Bank's asset sensitivity to interest rate changes. This asset sensitivity arises
due to interest-earning assets repricing more frequently than interest-bearing
liabilities. For example, if interest rates are declining, margins will narrow
as assets reprice downward more quickly than liabilities. The converse applies
when interest rates are on the rise.

As part of the Bank's interest rate risk management, loans of approximately
$191,093,000, $192,918,000 and $162,158,000, at June 30, 1998, December 31, 1997
and 1996, respectively, contain interest rate floors to reduce the unfavorable
impact to the Bank if interest rates were to decline. The interest rate floors
on these loans range from 7% to 11.25%.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in an entity's financial statements. This statement
requires that an enterprise (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income as a separate component in the equity section of a
statement of financial position. This statement is effective for reporting
periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of Statement No. 130 had no impact on the Company's earnings,
liquidity or capital resources.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
Statement No. 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
for related disclosures about products and services, geographic areas and major
customers. This statement is effective for reporting periods beginning after
December 15, 1997. The Company is currently reviewing the application of
Statement No. 131 and has not determined all segments it may report in the
future.

In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed for Internal Use" (SOP 98-1), which will become effective for
financial statements for the calendar year 1999, with early adoption encouraged.
SOP 98-1 requires the capitalization of eligible costs of specified activities
related to computer software developed or obtained for internal use. The Company
is assessing how the capitalization of these costs, which are currently expensed
by the Company, will affect its earnings, liquidity or capital resources.
Management does not believe the impact of adoption will be material.

F-11
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Statement No. 133 establishes a new model for accounting for derivatives and
hedging activities. It requires the recognition of all derivatives in the
statement of financial position as either assets or liabilities. In addition,
hedge accounting should only be provided for transactions that meet certain
specified criteria. This statement is effective for reporting periods beginning
after June 15, 1999. The adoption of Statement No. 133 is not expected to have a
material impact on the financial statements.

RECLASSIFICATIONS

Certain 1997, 1996 and 1995 amounts have been reclassified to conform to
1998 presentation.

2. SECURITIES

In the normal course of business, the Bank invests in federal government,
federal agency, state and municipal securities which inherently carry interest
rate risks based upon overall economic trends and related market yield
fluctuations. Investment securities at June 30, 1998, December 31, 1997 and
1996, respectively, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Investments held-to-maturity:
Federal National Mortgage Association (FNMA) mortgage-backed
securities (MBS)............................................... $ 17,197 $ 203 $ (39) $ 17,361
Federal Home Loan Mortgage Corporation
(FHLMC)--MBS................................................... 15,084 151 (12) 15,223
Government National Mortgage Association
(GNMA)--MBS.................................................... 14,105 311 -- 14,416
Municipal securities............................................. 7,370 188 -- 7,558
Small Business Administration (SBA)/Small Business Investment
Company (SBIC)................................................. 5,404 80 (156) 5,328
Federal Home Loan Bank (FHLB).................................... 2,954 36 -- 2,990
----------- ----------- ----- ---------
$ 62,114 $ 969 $ (207) $ 62,876
----------- ----------- ----- ---------
----------- ----------- ----- ---------
Investments available-for-sale:
FHLMC-MBS........................................................ $ 16,081 $ 443 $ (16) $ 16,508
Municipal securities............................................. 10,298 496 (1) 10,793
GNMA-MBS......................................................... 6,572 206 -- 6,778
FHLB............................................................. 5,327 -- (9) 5,318
U.S. Treasury Notes.............................................. 1,981 57 -- 2,038
FNMA-MBS......................................................... 1,815 14 -- 1,829
FHLB stock(1).................................................... 1,682 -- -- 1,682
Federal Reserve Bank stock(2).................................... 529 -- -- 529
----------- ----------- ----- ---------
$ 44,285 $ 1,216 $ (26) $ 45,475
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>

F-12
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

2. SECURITIES --(CONTINUED)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Investments held-to-maturity:
FNMA-MBS......................................................... $ 19,332 $ 236 $ (77) $ 19,491
FHLMC-MBS........................................................ 17,215 184 (24) 17,375
GNMA-MBS......................................................... 16,616 364 -- 16,980
Municipal securities............................................. 7,370 211 -- 7,581
SBA/SBIC......................................................... 5,529 90 (10) 5,609
FHLB............................................................. 4,950 50 (30) 4,970
----------- ----------- ----------- ---------
$ 71,012 $ 1,135 $ (141) $ 72,006
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
Investments available-for-sale:
FHLMC-MBS........................................................ $ 11,795 $ 471 $ -- $ 12,266
Municipal securities............................................. 10,320 575 -- 10,895
GNMA-MBS......................................................... 6,964 179 -- 7,143
FHLB............................................................. 3,201 28 -- 3,229
U.S. Treasury Notes.............................................. 2,977 63 -- 3,040
FNMA-MBS......................................................... 951 19 -- 970
FHLB stock(1).................................................... 3,540 -- -- 3,540
Federal Reserve Bank stock(2).................................... 529 -- -- 529
----------- ----------- ----------- ---------
$ 40,277 $ 1,335 $ -- $ 41,612
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>

F-13
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

2. SECURITIES --(CONTINUED)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Investments held-to-maturity:
FNMA-MBS......................................................... $ 23,159 $ 129 $ (353) $ 22,935
FHLMC-MBS........................................................ 21,347 138 (267) 21,218
GNMA-MBS......................................................... 15,386 136 (12) 15,510
Municipal bonds.................................................. 7,484 56 (38) 7,502
SBA/SBIC......................................................... 5,736 32 (67) 5,701
FHLB............................................................. 4,942 -- (111) 4,831
----------- ----- ----- ---------
$ 78,054 $ 491 $ (848) $ 77,697
----------- ----- ----- ---------
----------- ----- ----- ---------
Investments available-for-sale:
Municipal bonds.................................................. $ 7,446 $ 350 $ (18) $ 7,778
GNMA-MBS......................................................... 4,837 59 -- 4,896
FHLMC-MBS........................................................ 4,489 164 -- 4,653
FNMA preferred stock............................................. 2,200 99 -- 2,299
FNMA-MBS......................................................... 1,076 44 -- 1,120
U.S. Treasury Notes.............................................. 997 31 -- 1,028
FHLB stock(1).................................................... 3,337 -- -- 3,337
Federal Reserve Bank stock(2).................................... 515 -- -- 515
----------- ----- ----- ---------
$ 24,897 $ 747 $ (18) $ 25,626
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>

- ---------

(1) FHLB stock held by the Bank 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 the Bank is subject to certain
restrictions under Federal Reserve Bank policy.

The following sets forth information concerning sales of available-for-sale
securities (in thousands):

F-14
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

2. SECURITIES --(CONTINUED)
Investments carried at approximately $4,550,000, $3,568,000 and $1,028,000
in the available-for-sale portfolio at June 30, 1998, December 31, 1997 and
1996, respectively, were pledged to secure public deposits and short-term
borrowings of approximately $637,000, $1,359,000 and $766,000, respectively.
Additionally, investments in the available-for-sale portfolio carried at
approximately $10,858,000 and $11,096,000 were pledged to secure borrowed funds
at December 31, 1997 and 1996, respectively.

At December 31, 1997 future contractual maturities of debt securities are as
follows (in thousands):

<TABLE>
<CAPTION>
INVESTMENTS INVESTMENTS
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------- ----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Within one year................................. $ 2,050 $ 2,093 $ 999 $ 1,007
Within two to five years........................ 1,547 1,573 3,638 3,722
Within six to ten years......................... 30,697 30,996 3,986 4,165
After ten years................................. 36,718 37,344 27,586 28,649
----------- --------- ----------- ---------
$ 71,012 $ 72,006 $ 36,209 $ 37,543
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>

The Bank holds mortgage-backed securities which may mature at an earlier
date than the contractual maturity due to prepayments. The Bank also holds
certain securities which may be called by the issuer at an earlier date than the
contractual maturity date.

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

The Bank makes commercial, real estate and other loans to commercial and
individual customers throughout the markets its serves in Texas and Louisiana.

The loan portfolio is summarized by major categories as follows (in
thousands):

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Commercial and industrial.................... $ 220,725 $ 193,355 $ 133,564
Real estate-mortgage......................... 106,322 122,657 113,128
Real estate-construction..................... 22,617 21,609 17,639
Consumer and other........................... 10,001 10,147 13,343
Factored receivables......................... 10,780 5,249 6,217
----------- --------- ---------
Gross loans................................ 370,445 353,017 283,891
Unearned discounts and interest.............. (911) (980) (1,050)
Deferred loan fees........................... (3,173) (3,127) (2,244)
----------- --------- ---------
Total loans................................ 366,361 348,910 280,597
Allowance for loan losses.................... (5,395) (3,569) (2,141)
----------- --------- ---------
Loans, net............................... $ 360,966 $ 345,341 $ 278,456
----------- --------- ---------
----------- --------- ---------
</TABLE>

F-15
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

3. LOANS AND ALLOWANCE FOR LOAN LOSSES --(CONTINUED)
Although the Bank's loan portfolio is diversified, a substantial portion of
its customers' ability to service their debts is dependent primarily on the
service sectors of the economy. At June 30, 1998 and December 31, 1997 and 1996,
the Bank's loan portfolios consisted of concentrations (greater than 25% of
capital) in the following industries (in thousands):

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Hotels/motels................................ $ 55,887 $ 52,221 $ 30,589
Retail centers............................... 34,454 30,076 34,724
Restaurants.................................. 29,991 27,613 17,910
Apartment buildings.......................... 18,853 23,972 22,327
Convenience/gasoline stations................ 11,258 11,022 8,320
Grocery stores............................... 10,392 9,962 10,536
All other.................................... 209,610 198,151 159,485
----------- --------- ---------
Gross loans.............................. $ 370,445 $ 353,017 $ 283,891
----------- --------- ---------
----------- --------- ---------
</TABLE>

Selected information regarding the loan portfolio is presented below (in
thousands):

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Variable rate loans.......................... $ 282,565 $ 281,416 $ 230,640
Fixed rate loans............................. 87,880 71,601 53,251
----------- --------- ---------
$ 370,445 $ 353,017 $ 283,891
----------- --------- ---------
----------- --------- ---------
</TABLE>

Changes in the allowance for loan losses are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period..................... $ 3,569 $ 2,141 $ 2,141 $ 1,612 $ 1,264
Provision for loan losses.......................... 1,889 964 3,350 2,118 792
Charge-offs........................................ (171) (602) (2,223) (1,806) (699)
Recoveries......................................... 108 121 301 217 255
--------- --------- --------- --------- ---------
Balance at end of period......................... $ 5,395 $ 2,624 $ 3,569 $ 2,141 $ 1,612
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

Loans for which the accrual of interest has been discontinued totaled
approximately $4,950,000, $2,663,000 and $1,581,000 at June 30, 1998, December
31, 1997 and 1996, respectively. Had these loans remained on an accrual basis,
interest in the amount of approximately $127,000, $62,000 and $84,000

F-16
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

3. LOANS AND ALLOWANCE FOR LOAN LOSSES --(CONTINUED)
would have been accrued on these loans during the six months ended June 30, 1998
and the years ended December 31, 1997 and 1996, respectively.

The recorded investment in loans for which impairment has been recognized in
accordance with Statement No. 114, as amended by Statement No. 118, and the
related specific allowance for loan losses on such loans at June 30, 1998,
December 31, 1997 and 1996 is presented below (in thousands):

<TABLE>
<CAPTION>
REAL ESTATE COMMERCIAL CONSUMER TOTAL
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
JUNE 30, 1998
Impaired loans having related allowance for loan
losses............................................ $ 6,565 $ 10,210 $ 63 $ 16,838
Less: Allowance for loan losses................... (307) (875) (12) (1,194)
Less: Guaranteed portion (SBA and Overseas Chinese
Credit Guarantee Fund (OCCGF)).................. -- (1,194) -- (1,194)
----------- ----------- --- ---------
Impaired loans, net of allowance for loan
losses and guarantees....................... $ 6,258 $ 8,141 $ 51 $ 14,450
----------- ----------- --- ---------
----------- ----------- --- ---------
</TABLE>

<TABLE>
<CAPTION>
REAL ESTATE COMMERCIAL CONSUMER TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Impaired loans having related allowance for loan losses.......... $ 5,077 $ 6,518 $ 130 $ 11,725
Less: Allowance for loan losses................................ (263) (540) (32) (835)
Less: Guaranteed portion (SBA and Overseas Chinese Credit
Guarantee Fund (OCCGF))...................................... -- (2,605) -- (2,605)
----------- ----------- ----- ---------
Impaired loans, net of allowance for loan losses and
guarantees............................................... $ 4,814 $ 3,373 $ 98 $ 8,285
----------- ----------- ----- ---------
----------- ----------- ----- ---------

DECEMBER 31, 1996
Impaired loans having related allowance for loan losses.......... $ 601 $ 3,909 $ 262 $ 4,772
Less: Allowance for loan losses................................ (30) (284) -- (314)
Less: Guaranteed portion (SBA and OCCGF)....................... -- (818) (91) (909)
----------- ----------- ----- ---------
Impaired loans, net of allowance for loan losses and
guarantees............................................... $ 571 $ 2,807 $ 171 $ 3,549
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>

For the six months ended June 30, 1998 and the years ended December 31, 1997
and 1996, the average recorded investment in impaired loans was approximately
$13,527,000, $8,236,000 and $3,825,000, respectively. The related amount of
interest income recognized while the loans were impaired approximated
$1,084,000, $526,000 and $119,000 for the six months ended June 30, 1998 and the
years ended December 31, 1997 and 1996, respectively.

Additionally, at December 31, 1997 and 1996, loans carried at approximately
$14,457,000 and $11,630,000, respectively, were pledged to secure borrowed
funds.

F-17
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

4. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>
AS OF
ESTIMATED ---------------------------------
USEFUL DECEMBER 31,
LIVES (IN JUNE 30, --------------------
YEARS) 1998 1997 1996
--------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture, fixtures and equipment................ 3 - 10 $ 7,505 $ 6,999 $ 6,063
Building and improvements........................ 3 - 20 3,711 3,638 3,085
Land............................................. -- 1,679 1,679 1,679
Leasehold improvements........................... 5 1,733 1,426 1,224
----------- --------- ---------
14,628 13,742 12,051
Accumulated depreciation......................... (6,615) (5,669) (3,980)
----------- --------- ---------
Premises and equipment, net.................. $ 8,013 $ 8,073 $ 8,071
----------- --------- ---------
----------- --------- ---------
</TABLE>

5. INTEREST-BEARING DEPOSITS

The types of accounts and their respective balances included in
interest-bearing deposits are as follows (in thousands):

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Interest-bearing demand deposits............................. $ 93,553 $ 86,787 $ 74,655
Savings and money market accounts............................ 29,578 26,028 22,937
Time deposits less than $100,000............................. 156,349 149,567 130,056
Time deposits $100,000 and over.............................. 124,047 108,887 94,272
----------- --------- ---------
Interest-bearing deposits.................................... $ 403,527 $ 371,269 $ 321,920
----------- --------- ---------
----------- --------- ---------
</TABLE>

At December 31, 1997, the scheduled maturities of time deposits are as
follows (in thousands):

F-18
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

6. OTHER BORROWINGS

There were no other borrowings outstanding at June 30, 1998. At December 31,
1997 and 1996 other borrowings consisted of prepayable floating rate FHLB notes
with total principal outstanding of $15,900,000 and $8,800,000, respectively.
The notes had interest rates that reset periodically based on the six-month
London Interbank Offered Rate (LIBOR) (5.84% and 5.63% at December 31, 1997 and
1996, respectively) plus an adjustment ranging from minus 15 to plus five basis
points and three-month LIBOR (5.81% and 5.56% at December 31, 1997 and 1996,
respectively) plus 14 basis points.

Additionally, the Bank has several unused, unsecured lines of credit with
correspondent banks totaling $7,000,000 at June 30, 1998 and December 31, 1997
and $12,000,000 at December 31, 1996.

7. INCOME TAXES

Deferred income taxes result from differences between the amounts of assets
and liabilities as measured for income tax return and for financial reporting
purposes. The significant components of the net deferred tax asset are as
follows (in thousands):

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for loan losses........................................ $ 1,345 $ 700 $ 263
Recognition of deferred loan fees................................ 1,165 1,063 722
Depreciation..................................................... 433 357 208
Recognition of interest on nonaccrual loans...................... 118 118 107
Other............................................................ 21 40 184
----------- --------- ---------
Gross deferred tax assets........................................ 3,082 2,278 1,484
----------- --------- ---------
Unrealized gains on investments available-for-sale, net.......... 399 449 248
FHLB stock dividends............................................. 126 199 65
----------- --------- ---------
Gross deferred tax liability..................................... 525 648 313
----------- --------- ---------
Net deferred tax asset....................................... $ 2,557 $ 1,630 $ 1,171
----------- --------- ---------
----------- --------- ---------
</TABLE>

The Bank has provided no valuation allowance for the net deferred tax asset
at June 30, 1998, December 31, 1997 or 1996 due primarily to its ability to
offset reversals of net deductible temporary differences against income taxes
paid in previous years and expected to be paid in future years.

F-19
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

7. INCOME TAXES --(CONTINUED)
Components of the provision for income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current provision for federal income taxes.......... $ 2,105 $ 1,775 $ 2,454 $ 1,170 $ 1,399
Deferred federal income tax benefit................. (877) (874) (660) (361) (308)
--------- --------- --------- --------- ---------
Total provision for income taxes.................. $ 1,228 $ 901 $ 1,794 $ 809 $ 1,091
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

A reconciliation of the provision for income taxes computed at statutory
rates compared to the actual provision for income taxes is as follows (in
thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ------------ -----------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ --- ------ --- ------ ---
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal income tax expense at statutory
rate....................................... $1,374 34% $1,049 34% $2,027 34% $ 960 34% $1,255 34%
Tax-exempt interest income................... (163) (4) (164) (5) (329) (6) (278) (10) (265) (7)
Other, net................................... 17 -- 16 -- 96 2 127 5 101 3
------ --- ------ --- ------ --- ------ --- ------ ---
Provision for income taxes............... $1,228 30% $ 901 29% $1,794 30% $ 809 29% $1,091 30%
------ --- ------ --- ------ --- ------ --- ------ ---
------ --- ------ --- ------ --- ------ --- ------ ---
</TABLE>

8. OTHER COMPREHENSIVE INCOME

The following sets forth the deferred tax benefit (expense) related to other
comprehensive income (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED
JUNE 30, DECEMBER 31,
---------------------- ---------------------------------
1998 1997 1997 1996 1995
----- --------- --------- ----- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unrealized gains (losses) arising during the period......... $ 45 $ (95) $ (277) $ 36 $ (608)
Less: reclassification adjustment for gains realized in net
income.................................................... -- 26 64 33 7
--- --- --------- --- ---------
Other comprehensive income.................................. $ 45 $ (69) $ (213) $ 69 $ (601)
--- --- --------- --- ---------
--- --- --------- --- ---------
</TABLE>

9. 401(K) PROFIT SHARING PLAN

The Bank sponsors a 401(k) Profit Sharing Plan (the Plan) for all full-time
employees. The Plan is a defined contribution plan providing for pretax employee
contributions of up to 6% of annual compensation plus any additional
discretionary after-tax employee contributions. The Bank contributes 4% of each

F-20
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

9. 401(K) PROFIT SHARING PLAN --(CONTINUED)
participant's salary to the Plan. The Bank made contributions before expenses to
the Plan of approximately $112,000 and $110,000 during the six months ended June
30, 1998 and 1997, respectively. The Bank made contributions before expenses to
the Plan of approximately $248,000, $173,000 and $126,000 during the years ended
December 31, 1997, 1996 and 1995, respectively.

10. STOCK PLANS

In October 1991, the Bank granted two nonqualified stock options to its
chief executive officer for a total of 106,480 shares of the Bank's common stock
(after giving effect to the 10% stock dividends issued in 1992, 1993 and 1995).
During 1995, the chief executive officer exercised part of the first option and
purchased 26,620 shares at $2.54 per share. During 1997, the former chief
executive officer exercised the remaining 79,860 options and purchased common
shares at $2.71 per share.

The Company has four stock option and incentive plans which were originally
developed and instituted by the Bank during 1998 and assumed by the Company in
the holding company formation (Note 18).

The Company has outstanding options issued to the six founding directors of
the Bank to purchase 120,000 shares of common stock pursuant to a nonqualified
stock option plan ("Founding Director Plan"). Pursuant to the Founding Director
Plan, each of the six founding directors of the Bank were granted options to
purchase 20,000 shares of common stock at a price of $11.00 per share. The
options must be exercised by July 24, 2003.

The Company's Non-Employee Director Stock Bonus Plan ("Director Plan")
authorizes the issuance of 60,000 shares of common stock to the directors of the
Company who do not serve as an officer of the Company. Under the Director Plan,
up to 12,000 shares of common stock may be issued each year for a five year
period if the Company achieves certain return on equity ratios with no shares
being issued if the return on equity is below 13%. No shares have been issued
pursuant to the Director Plan to date.

The Company's 1998 Employee Stock Purchase Plan ("Purchase Plan") authorizes
the issuance of up to 200,000 shares of common stock to employees of the Company
and its subsidiaries. Each year, the Board of Directors will determine the
number of shares to be offered under the Purchase Plan; provided that the
offering in any one year may not exceed 20,000 shares. The offering price of a
share will be 85% of the closing price of a share of common stock on the
business day immediately prior to the commencement of such offering. No shares
have been issued pursuant to the Purchase Plan to date.

The Company's 1998 Stock Incentive Plan ("Incentive Plan") authorizes the
issuance of 200,000 shares of common stock under both "nonqualified" and
"incentive stock" options and performance shares of common stock. Nonqualified
options and incentive stock options will be granted at no less than the fair
market value of the common stock and must be exercised within five years.
Performance shares are certificates representing the right to acquire shares of
common stock upon satisfaction of performance goals established by the Company.
Holders of performance shares have all of the voting, dividend and other rights
of shareholders of the Company, subject to the terms of the award agreement
relating to such shares. If the performance goals are achieved, the performance
shares will vest and may be exchanged for shares of commons stock. If the
performance goals are not achieved, the performance shares may be forfeited. No
grants have been made pursuant to the Incentive Plan to date.

F-21
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

11. REGULATORY MATTERS

Regulatory restrictions limit the payment of cash dividends by the Bank. The
approval of the Office of the Comptroller of the Currency (OCC) is required for
any cash dividend paid by the Bank if the total of all cash dividends declared
in any calendar year exceeds the total of its net income for that year combined
with the net addition to undivided profits for the preceding two years. As of
June 30, 1998 and December 31, 1997, approximately $7.5 million and $5.1
million, respectively, was available for payment of dividends by the Bank to the
Company under applicable restrictions, without regulatory approval. There were
no dividends declared or paid during the six months ended June 30, 1998 and 1997
and the three years ended December 31, 1997.

The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. The regulations
require the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital classification is also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ration of Total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of December 31, 1997, that the Bank meets all capital
adequacy requirements to which it is subject.

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can trigger certain mandatory (and possibly additional discretionary) actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital to risk-weighted assets and of Tier
1 capital to average assets as defined by the OCC. Management believes, as of
December 31, 1997, that all capital adequacy requirements to which the Bank is
subject to have been met.

The most recent notifications from the OCC categorized the Bank as
"adequately capitalized," as defined, under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table below. There are no conditions or events since the
notifications that management believes have changed the Bank's level of capital
adequacy.

F-22
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

11. REGULATORY MATTERS --(CONTINUED)

The Bank's actual capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
TO BE ADEQUATELY TO BE WELL
CAPITALIZED UNDER CAPITALIZED UNDER
PROMPT CORRECTIVE PROMPT CORRECTIVE
ACTUAL ACTION PROVISIONS ACTION PROVISIONS
-------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 (unaudited):
Total capital (to risk weighted greater than or greater than or
assets)............................... $38,593 10.1% equal to $30,569 8.0% equal to $38,211 10.0%
Tier 1 capital (to risk weighted greater than or greater than or
assets)............................... 33,198 8.7% equal to 15,263 4.0% equal to 22,895 6.0%
greater than or greater than or
Leverage ratio.......................... 33,198 6.3% equal to 15,809 3.0% equal to 26,348 5.0%
As of December 31, 1997:
Total capital (to risk weighted greater than or greater than or
assets)............................... $33,197 9.5% equal to $27,955 8.0% equal to $34,944 10.0%
Tier 1 capital (to risk weighted greater than or greater than or
assets)............................... 29,628 8.4% equal to 14,109 4.0% equal to 21,163 6.0%
greater than or greater than or
Leverage ratio.......................... 29,628 5.9% equal to 15,065 3.0% equal to 25,108 5.0%
As of December 31, 1996:
Total capital (to risk weighted greater than or greater than or
assets)............................... $27,095 9.4% equal to $23,060 8.0% equal to $28,824 10.0%
Tier 1 capital (to risk weighted greater than or greater than or
assets)............................... 25,004 8.7% equal to 11,496 4.0% equal to 17,244 6.0%
greater than or
Leverage ratio.......................... 25,004 6.0% greater than 12,502 3.0% equal to 20,837 5.0%
</TABLE>

12. OFF-BALANCE SHEET RISK
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. Commitments to extend credit at June 30, 1998,
December 31, 1997 and December 31, 1996 aggregated approximately $101,145,000,
$57,924,000 and $48,789,000, respectively. Commitments under letters of credit
at June 30, 1998, December 31, 1997 and December 31, 1996 totaled $8,106,000,
$9,271,000 and $7,338,000, respectively.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (Statement No. 107) requires disclosures of
estimated fair values for all financial instruments and the methods and
assumptions used by management to estimate the fair value for each type of
financial instrument. Fair value is the amount at which a financial instrument
could be exchanged in a current transaction between parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price, if
one exists.

F-23
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

13. FAIR VALUE OF FINANCIAL INSTRUMENTS --(CONTINUED)
Quoted market prices are not available for a significant portion of the
Bank's financial instruments. As a result, the fair values presented are
estimates derived using present value or other valuation techniques and may not
be indicative of the net realizable value. In addition, the calculation of
estimated fair value is based on market conditions at a specific point in time
and may not be reflective of future fair value.

Certain financial instruments and all nonfinancial instruments are excluded
from the scope of Statement No. 107. Accordingly, the fair value disclosures
required by Statement No. 107 provide only a partial estimate of the fair value
of the Bank. For example, the values associated with the various ongoing
businesses which the Bank operates are excluded. The Bank has developed
long-term relationships with its customers through its deposit base referred to
as core deposit intangibles. In the opinion of management, these items, in the
aggregate, add value to the Bank under Statement No. 107; however, their fair
value is not disclosed in this note.

Fair values among financial institutions are not comparable due to the wide
range of permitted valuation techniques and numerous estimates that must be
made. This lack of an objective valuation standard introduces a great degree of
subjectivity to these derived or estimated fair values. Therefore, caution
should be exercised in using this information for purposes of evaluating the
financial condition of the Bank compared with other financial institutions.

The following summary presents the methodologies and assumptions used to
estimate the fair value of the Bank's financial instruments, required to be
valued pursuant to Statement No. 107.

ASSETS FOR WHICH FAIR VALUE APPROXIMATES CARRYING VALUE

The fair values of certain financial assets and liabilities carried at cost,
including cash and due from banks, deposits with banks, federal funds sold, due
from customers on acceptances and accrued interest receivable, are considered to
approximate their respective carrying values due to their short-term nature and
negligible credit losses. The fair value of other real estate held for
disposition is also considered to approximate carrying value. As discussed in
Note 1, such assets are carried at the lower of cost or current estimated
disposition value.

INVESTMENT SECURITIES

Fair values are based upon publicly quoted market prices as disclosed in
Note 2.

LOANS

The fair value of loans originated by the Bank is estimated by discounting
the expected future cash flows using a discount rate commensurate with the risks
involved. The loan portfolio is segregated into groups of loans with homogeneous
characteristics and expected future cash flows and interest rates reflecting
appropriate credit risk are determined for each group. An estimate of future
credit losses based on historical experience is factored into the discounted
cash flow calculation. Estimated fair value of the loan portfolio at December
31, 1997 and 1996 approximated $345,478,000 and $278,410,000, respectively.

F-24
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

13. FAIR VALUE OF FINANCIAL INSTRUMENTS --(CONTINUED)
LIABILITIES FOR WHICH FAIR VALUE APPROXIMATES CARRYING VALUE

Statement No. 107 requires that the fair value disclosed for deposit
liabilities with no stated maturity (i.e., demand, savings and certain money
market deposits) be equal to the carrying value. Statement No. 107 does not
allow for the recognition of the inherent funding value of these instruments.
The fair value of federal funds purchased, borrowed funds, acceptances
outstanding, accounts payable and accrued liabilities are considered to
approximate their respective carrying values due to their short-term nature.

TIME DEPOSITS

The fair value of time deposits is estimated by discounting cash flows based
on contractual maturities at the interest rates for raising funds of similar
maturity. Given the current interest rate environment, fair value of such time
deposits approximates carrying value.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT

The fair value of the commitments to extend credit is considered to
approximate carrying value at December 31, 1997 and 1996.

14. COMMITMENTS AND CONTINGENT LIABILITIES

The Bank leases certain branch premises and equipment under operating leases
which expire between 2001 and 2002. The Bank incurred rental expense of
approximately $327,000, $558,000 and $507,000 for the six months ended June 30,
1998 and the years ended December 31, 1997 and 1996, respectively, under these
lease agreements. Future minimum lease payments at December 31, 1997 due under
these lease agreements are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 623
1999................................................................................. 628
2000................................................................................. 633
2001................................................................................. 168
After 2001........................................................................... 105
---------
$ 2,157
---------
---------
</TABLE>

The Bank is a defendant in several legal actions arising from its normal
business activities. Legal counsel and management believe that the ultimate
liability, if any, resulting from these legal actions will not materially affect
the Company's financial position or results of operations.

15. RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank enters into transactions with
its officers and directors and their affiliates. It is the Bank's policy that
all transactions with these parties be on the same terms, including interest
rates and collateral requirements on loans, as those prevailing at the same time
for

F-25
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

15. RELATED PARTY TRANSACTIONS --(CONTINUED)
comparable transactions with unrelated parties. At June 30, 1998, December 31,
1997 and 1996, certain officers and directors and their affiliated companies
were indebted to the Bank in the aggregate amounts of approximately $2,822,000,
$4,584,000 and $2,415,000, respectively.

The following is an analysis of activity for the fiscal year ended December
31, 1997 for such amounts (in thousands):

<TABLE>
<CAPTION>
1997
---------
<S> <C>
Balance at January 1................................................................ $ 2,415
New loans and advances............................................................ 4,921
Repayments........................................................................ (2,752)
---------
Balance at December 31.............................................................. $ 4,584
---------
---------
</TABLE>

In addition, as of June 30, 1998, December 31, 1997 and 1996, the Bank held
demand and other deposits for related parties of approximately $2,520,000,
$4,802,000 and $4,900,000, respectively.

16. EARNINGS PER SHARE

The following data show the amounts used in computing net income per share
(EPS) and the weighted average number of shares of dilutive potential common
stock. Computations reflect the effects of a four for one exchange of common
shares, as further described in Note 18.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income available to common shareholders' equity
used in basic and diluted EPS..................... $ 2,813 $ 2,184 $ 4,168 $ 2,013 $ 2,600
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Weighted average common shares in basic EPS......... 5,655 5,585 5,581 5,364 5,015
Effects of dilutive securities: Options............. -- 70 35 80 89
--------- --------- --------- --------- ---------
Weighted average common and potentially diluted
common shares used in dilutive EPS................ 5,655 5,655 5,616 5,444 5,104
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-26
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND FOR THE

SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)

17. SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION (IN THOUSANDS)

18. SUBSEQUENT EVENTS
Effective (________ __), 1998, the Company was formed as a bank holding
company. The Bank is indirectly a 100% wholly-owned subsidiary of the Company.
The Company exchanged 5,654,560 shares of the Company's Common Stock for all of
the issued and outstanding shares of common stock of the Bank through an
exchange of four Company shares of common stock for one share of the Bank's
common stock outstanding. The accompanying financial statements have been
restated to reflect the effect of the four for one exchange ratio on all share
amounts and earnings per share for all periods presented.

F-27
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Summary Consolidated Financial Data............ 5
Risk Factors................................... 6
The Company.................................... 11
Use of Proceeds................................ 15
Dividend Policy................................ 15
Dilution....................................... 15
Capitalization................................. 16
Nature of the Trading Market................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Management..................................... 55
Principal Shareholders......................... 63
Supervision and Regulation..................... 65
Description of Securities of the Company....... 72
Underwriting................................... 75
Legal Matters.................................. 77
Experts........................................ 77
Available Information.......................... 77
Index to Consolidated Financial Statements..... F-1
</TABLE>

-------------------

UNTIL , (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

1,600,000 SHARES

LOGO

METROCORP BANCSHARES, INC.

COMMON STOCK

-------------------

PROSPECTUS
-------------------

LEGG MASON WOOD WALKER
INCORPORATED

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated fees and expenses incurred by the Registrant in connection
with this Offering are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 5,664
National Association of Securities Dealers, Inc. filing fee....... $ *
Printing and engraving expenses................................... $ *
Legal fees and expenses of counsel for the Registrant............. $ *
Accounting fees and expenses...................................... $ *
Blue sky filing fees and expenses (including legal fees and
expenses)....................................................... $ *
Transfer Agent fees............................................... $ *
Miscellaneous..................................................... $ *
---------
Total............................................................. $ *
---------
---------
</TABLE>

- ---------

* To be supplied by Amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Articles of Incorporation and Bylaws require the Registrant
to indemnify officers and directors of the Registrant to the fullest extent
permitted by Article 2.02-1 of the Business Corporation Act of the State of
Texas (the "TBCA"). The Articles of Incorporation and Bylaws of the Registrant
are filed as Exhibit 3.1 and 3.2 to the Registration Statement. Generally,
Article 2.02-1 of the TBCA permits a corporation to indemnify a person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding
because the person was or is a director or officer if it is determined that such
person (i) conducted himself in good faith, (ii) reasonably believed (a) in the
case of conduct in his official capacity as a director or officer of the
corporation, that his conduct was in the corporation's best interests, and/or
(b) in other cases, that his conduct was at least not opposed to the
corporation's best interests, and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful. In addition,
the TBCA requires a corporation to indemnify a director or officer for any
action that such director or officer is wholly successfully in defending on the
merits.

The Registrant's Articles of Incorporation provide that a director of the
Registrant will not be liable to the corporation for monetary damages for an act
or omission in the director's capacity as a director, except to the extent not
permitted by law. Texas law does not permit exculpation of liability in the case
of (i) a breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) an act or omission not in good faith that involves
intentional misconduct or a knowing violation of the law, (iii) a transaction
from which a director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv) an
act or omission for which the liability of the director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or dividend.

Pursuant to the Underwriting Agreement, a form of which is filed as Exhibit
1.1 to this Registration Statement, the Underwriter has agreed to indemnify the
directors, officers and controlling persons of the Registrant against certain
civil liabilities that may be incurred in connection with this Offering,
including certain liabilities under the Securities Act.

The Registrant may provide liability insurance for each director and officer
for certain losses arising from claims or changes made against them while acting
in their capabilities as directors or officers of

II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
Registrant, whether or not Registrant would have the power to indemnify such
person against such liability, as permitted by law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On November 17, 1995, 214,240 shares were sold to the Federal National
Mortgage Association at a price of $5.09 per share.

On January 1, 1997, an aggregate of 210,532 shares were sold to 11 directors
of the Bank at a per share price of $4.75.

On June 9, 1997 the Company issued 79,860 shares to an executive officer of
the Bank at $2.71 per share pursuant to the exercise of options granted to the
executive officer.

On February 9, 1998, an aggregate of 33,040 shares were issued to ten
directors of the Bank as a performance bonus. The value attributed at the time
was $7.68 per share.

On March 20, 1998, an aggregate of 91,892 shares were sold to 11 directors
of the Bank at a price of $8.25 per share.

On , 1998, an aggregate of 5,654,560 shares were issued in the holding
company formation to the shareholders of the Bank in exchange for all of the
outstanding shares of common stock of the Bank.

Except for the shares issued on February 9, 1998 and , 1998 the
consideration for each sale was cash. Except for the shares issued on ,
1998, each of the above mentioned transactions represents the issuance and/or
sale of shares of common stock of the Bank that were issued pursuant to the
registration exemption provided by Section 3(a)(2) of the Securities Act of
1933, as amended. The shares issued on , 1998 were issued pursuant to the
registration exemption provided by Section 3(a)(12) of the Securities Act of
1933, as amended. Except for the shares issued on , 1998, the number of
shares and per share values have been adjusted to reflect the four for one
exchange ratio of the holding company formation.

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

The following documents are filed as exhibits to this Registration
Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- -----------------------------------------------------------------------------------
<C> <S>
*1 --Form of Underwriting Agreement by and between the Underwriter and the Company.
3.1 --Amended and Restated Articles of Incorporation of the Company.
3.2 --Amended and Restated Bylaws of the Company.
*4 --Form of Certificate representing shares of Common Stock.
5 --Opinion of Bracewell & Patterson, L.L.P. as to the legality of the securities
being registered.
10.1 --Agreement and Plan of Reorganization by and among MetroCorp Bancshares, Inc., MC
Bancshares of Delaware, Inc. and MetroBank, N.A.
10.2 --Form of Director Stock Option Agreement.
10.3 --Non-Employee Director Stock Bonus Plan.
10.4 --1998 Employee Stock Purchase Plan.
10.5 --1998 Stock Incentive Plan.
21 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP
23.2 --Consent of Bracewell & Patterson, L.L.P. (included in the opinion to be filed as
Exhibit 5 to this Registration Statement)
27 --Financial Data Schedule.
</TABLE>

- ---------

* To be supplied by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

None.

All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
and, therefore, have been omitted.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide the Underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officer and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question

II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497)(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
MetroCorp Bancshares, Inc., has duly caused this Registration Statement or
amendment thereto to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston and State of Texas on September 1, 1998.

<TABLE>
<S> <C> <C>
METROCORP BANCSHARES, INC.

By: /s/ DON J. WANG
-----------------------------------------
Don J. Wang
PRESIDENT
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement or amendment thereto has been signed by the following
persons in the indicated capacities on September 1, 1998.

<TABLE>
<CAPTION>
SIGNATURE POSITION
- ------------------------------------------------------ ---------------------------------------------------------

<C> <S>
/s/ DON J. WANG
------------------------------------------- Chairman of the Board and President (principal executive
Don J. Wang officer)

/s/ ATTILIO F. GALLI Senior Vice President and Chief Financial Officer
------------------------------------------- (principal financial officer and principal accounting
Attilio F. Galli officer)

/s/ HELEN F. CHEN
------------------------------------------- Director
Helen F. Chen

/s/ TOMMY F. CHEN
------------------------------------------- Director
Tommy F. Chen

/s/ JANE W. KWAN
------------------------------------------- Director
Jane W. Kwan

/s/ EDWARD LEE
------------------------------------------- Director
Edward Lee

/s/ JOHN LEE
------------------------------------------- Director
John Lee
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE POSITION
- ------------------------------------------------------ ---------------------------------------------------------

<C> <S>
/s/ DAVID TAI
------------------------------------------- Director
David Tai

/s/ JOE TING
------------------------------------------- Director
Joe Ting
</TABLE>

II-6
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
*1 --Form of Underwriting Agreement by and between the Underwriter and the Company.
3.1 --Amended and Restated Articles of Incorporation of the Company.
3.2 --Amended and Restated Bylaws of the Company.
*4 --Form of Certificate representing shares of Common Stock.
5 -- Opinion of Bracewell & Patterson, L.L.P. as to the legality of the securities being registered.
10.1 -- Agreement and Plan of Reorganization by and among MetroCorp Bancshares, Inc., MC Bancshares of
Delaware, Inc. and MetroBank, N.A.
10.2 --Form of Director Stock Option Agreement.
10.3 --Non-Employee Director Stock Bonus Plan.
10.4 --1998 Employee Stock Purchase Plan.
10.5 --1998 Stock Incentive Plan.
21 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion to be filed as Exhibit 5 to this
Registration Statement)
27 --Financial Data Schedule.
</TABLE>

- ---------

* To be supplied by amendment.

<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
METROCORP BANCSHARES, INC.

ARTICLE 1.

The name of the Corporation is MetroCorp Bancshares, Inc.

ARTICLE 2.

The period of duration of the Corporation is perpetual.

ARTICLE 3.

The purpose for which the Corporation is organized is the transaction of
any or all lawful business.

ARTICLE 4.

Section 4.1. AUTHORIZED SHARES. The aggregate number of all classes of
stock which the Corporation has authority to issue is 22,000,000 shares divided
into (A) one class of 20,000,000 shares of Common Stock with a par value of
$1.00 per share, and (B) one class of 2,000,000 shares of Preferred Stock with a
par value of $1.00 per share, which may be divided into and issued in series as
set forth in this Article Four.

Section 4.2. AUTHORIZATION OF DIRECTORS TO DETERMINE CERTAIN RIGHTS OF
PREFERRED STOCK. The shares of Preferred Stock may be divided into and issued
in series. The Board of Directors shall have the authority to establish series
of unissued shares of Preferred Stock by fixing and determining the relative
rights and preferences of the shares of any series so established, and to
increase or decrease the number of shares within each such series; provided,
however, that the Board of Directors may not decrease the number of shares
within a series of Preferred Stock to less than the number of shares within such
series that are then issued. The Preferred Stock of each such series shall have
such designations, preferences, limitations, or relative rights, including
voting rights, as shall be set forth in the resolution or resolutions
establishing such series adopted by the Board of Directors, including, but
without limiting the generality of the foregoing, the following:
<PAGE>

(A) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except
where otherwise provided by the Board of Directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by like
action of the Board of Directors;

(B) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any
other series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or
noncumulative;

(C) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital stock, obligations, indebtedness, rights to
purchase securities or other securities of the Corporation or other
entities, domestic or foreign, or for other property or for any combination
of the foregoing, and the terms and conditions of such conversion or
exchange;

(D) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;

(E) The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation or in the event of any merger or
consolidation of or sale of assets by the Corporation;

(F) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such series of
Preferred Stock;

(G) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which
may be less than, equal to or greater than one vote per share, and which
may, without limiting the generality of the foregoing, include the right,
voting as a series of Preferred Stock as a class, to elect one or more
directors of the Corporation generally or under such specific circumstances
and on such conditions, as shall be provided in the resolution or
resolutions of the Board of Directors adopted pursuant hereto, including,
without limitation, in the event there shall have been a default in the
payment of dividends on or redemption of any one or more series of
Preferred Stock; and

-2-
<PAGE>

(H) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.

Section 4.3. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ALL CLASSES
OF CAPITAL STOCK.

(A) GENERAL. All shares of Common Stock shall have rights identical
to those of all other such shares. Except as they may vary among series
established pursuant to Section 4.2 of this Article Four, all shares of
Preferred Stock shall have preferences, limitations, and relative rights
identical to those of all other such shares.

(B) LIQUIDATION PREFERENCE. In the event of dissolution,
liquidation, or winding up of the Corporation (whether voluntary or
involuntary), after payment or provision for payment of debts but before
any distribution to the holders of Common Stock, the holders of each series
of Preferred Stock then outstanding shall be entitled to receive the amount
fixed by the Board of Directors pursuant to Section 4.2 of this Article
Four and no more. All remaining assets shall be distributed pro rata among
the holders of Common Stock. If the assets distributable among the holders
of Preferred Stock are insufficient to permit full payment to them, the
entire assets shall be distributed among the holders of the Preferred Stock
in proportion to their respective liquidation preferences unless otherwise
provided by the Board of Directors pursuant to Section 4.2 of this Article
Four. Neither the consolidation, merger, or reorganization of the
Corporation with any other corporation or corporations, nor the sale of all
or substantially all the assets of the Corporation, nor the purchase or
redemption by the Corporation of any of its outstanding shares shall be
deemed to be a dissolution, liquidation, or winding up within the meaning
of this paragraph.

(1) RIGHT; METHOD. All or any part of any one or more series of
Preferred Stock may be redeemed at any time or times at the option of the
Corporation, by resolution of the Board of Directors, in accordance with
the terms and conditions of this Article Four and those fixed by the Board
of Directors pursuant to Section 4.2 of this Article Four. The Corporation
may redeem shares of any one or more series without redeeming shares of any
other series. If less than all the shares of any series are to be
redeemed, the shares of the series to be redeemed shall be selected ratably
or by lot or by any other equitable method determined by the Board of
Directors.

-3-
<PAGE>

(2) NOTICE. Notice shall be given to the holders of shares to
be redeemed, either personally or by mail, not less than twenty nor more
than fifty days before the date fixed for redemption.

(3) PAYMENT. Holders of redeemed shares shall be paid in cash
the amount fixed by the Board of Directors pursuant to Section 4.2 of this
Article Four.

(4) PROVISION FOR PAYMENT. On or before the date fixed for
redemption, the Corporation may provide for payment of a sum sufficient to
redeem the shares called for redemption either (a) by setting aside the
sum, separate from its other funds, in trust for the benefit of the holders
of the shares to be redeemed, or (b) by depositing such sum in a bank or
trust company (either one in Texas having capital and surplus of at least
$10,000,000 according to its latest statement of condition, or one anywhere
in the United States duly appointed and acting as transfer agent of the
Corporation) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption
and to pay to the holders of the shares to be redeemed, on or after the
date fixed for redemption, the redemption price on surrender of their
respective share certificates. The holders of shares to be redeemed may be
evidenced by a list certified by the Corporation (by its president or a
vice president and by its secretary or an assistant secretary) or by its
transfer agent. If the Corporation so provides for payment, then from and
after the date fixed for redemption (a) the shares shall be deemed to be
redeemed, (b) dividends thereon shall cease to accrue, (c) such setting
aside or deposit shall be deemed to constitute full payment for the shares,
(d) the shares shall no longer be deemed to be outstanding, (e) the holders
thereof shall cease to be shareholders with respect to such shares, and
(f) the holders shall have no rights with respect thereto except the right
to receive (without interest) their proportionate shares of the funds so
set aside or deposited upon surrender of their respective certificates, and
any right to convert such shares which may exist. Any interest accrued on
funds so set aside or deposited shall belong to the Corporation. If the
holders of the shares do not, within six years after such deposit, claim
any amount so deposited for redemption thereof, the bank or trust company
shall upon demand pay over to the Corporation the balance of the funds so
deposited, and the bank or trust company shall thereupon be relieved of all
responsibility to such holders.

(5) STATUS OF REDEEMED SHARES. Shares of Preferred Stock which
are redeemed shall be canceled and shall be restored to the status of
authorized but unissued shares.

(D) PURCHASE. Except as fixed by the Board of Directors pursuant to
Section 4.2 of this Article Four or as otherwise expressly provided by law,
nothing herein shall limit the

-4-
<PAGE>

right of the Corporation to purchase any of its outstanding shares in
accordance with law, by public or private transaction.

ARTICLE 5.

The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least $1,000.

ARTICLE 6.

The shareholders of the Corporation shall not be entitled to cumulate their
votes in the election of directors.

ARTICLE 7.

No holder of any shares of any class of stock of the Corporation shall, as
such holder, have any preemptive or preferential right to receive, purchase, or
subscribe to (1) any unissued or treasury shares of any class of stock (whether
now or hereafter authorized) of the Corporation, (2) any obligations, evidences
of indebtedness, or other securities of the Corporation convertible into or
exchangeable for, or carrying or accompanied by any rights to receive, purchase,
or subscribe to, any such unissued or treasury shares, (3) any right of
subscription to or to receive, or any warrant or option for the purchase of, any
of the foregoing securities, (4) any other securities that may be issued or sold
by the Corporation, other than such (if any) as the Board of Directors of the
Corporation, in its sole and absolute discretion, may determine from time to
time.

ARTICLE 8.

Section 8.1. VOTING REQUIREMENT. Except to the extent otherwise required
by law, the vote or concurrence of the holders of a majority of the shares of
the Corporation entitled to vote and represented in person or by proxy at a
meeting of the shareholders at which a quorum is present shall be the act of the
shareholders. With respect to any matter for which the affirmative vote of a
portion of the shares of the Corporation entitled to vote greater than a
majority of such shares is required by the Texas Business Corporation Act (or
any successor or replacement statute), as the same now exists or may hereafter
be amended, the affirmative vote of the holders of a majority of the shares of
the Corporation entitled to vote on the matter shall be the act of the
shareholders.

-5-
<PAGE>

Section 8.2. QUORUM REQUIREMENT. The holders of at least a majority of
the shares of the Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at any meeting of shareholders of the
Corporation.

Section 8.3. INTERESTED TRANSACTIONS. No contract or other transaction
between the Corporation and one or more of its directors, officers or
securityholders or between the Corporation and another corporation, partnership,
joint venture, trust or other enterprise of which one or more of the
Corporation's directors, officers or securityholders are members, officers,
securityholders, directors or employees or in which they are otherwise
interested, directly or indirectly, shall be invalid solely because of such
relationship, or solely because such director, officer or securityholder is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or other transaction, or solely because
his or their votes are counted for such purpose, if (A) the material facts as to
his relationship or interest and as to the contract or other transaction are
known or disclosed to the Board of Directors or committee thereof, and such
board or committee in good faith authorizes the contract or other transaction by
the affirmative vote of a majority of the disinterested directors even though
the disinterested directors be less than a quorum, or (B) the material facts as
to his relationship or interest and as to the contract or other transaction are
known or disclosed to the shareholders entitled to vote thereon, and the
contract or other transaction is approved in good faith by vote of the
shareholders, or (C) the contract or other transaction is fair as to the
Corporation as of the time it is entered into.

ARTICLE 9.

Section 9.1. INDEMNIFICATION. As permitted by Section G of Article 2.02-1
of the Texas Business Corporation Act as in effect on the date of the filing of
these Amended and Restated Articles of Incorporation with the Secretary of State
of the State of Texas ("Indemnification Article"), the Corporation hereby:

(A) makes mandatory the indemnification permitted under Section B of the
Indemnification Article as contemplated by Section G thereof;

(B) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a director who was, is, or is threatened to be made a named
defendant or respondent in a proceeding upon such director's compliance with the
requirements of Section K of the Indemnification Article; and

(C) extends the mandatory indemnification referred to in Section 9.1 (A)
above and the mandatory payment or reimbursement of expenses referred to in
Section 9.1 (B) above (i) to all

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<PAGE>

officers of the Corporation and (ii) to all persons who are or were serving
at the request of the Corporation as a director, officer, partner or trustee
of another foreign or domestic corporation, partnership, joint venture, trust
or employee benefit plan, to the same extent that the Corporation is
obligated to indemnify and pay or reimburse expenses to directors.

Section 9.2. INSURANCE. The Corporation may purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or arising
out of his status as such a person, whether or not the Corporation would have
the power to indemnify him against that liability under the Indemnification
Article.

Section 9.3. NON-EXCLUSIVITY. The provisions of Sections 9.1 and 9.2 of
this Article 9 shall not be deemed exclusive of any other rights to which any
such director, officer or other person may be entitled under any other
agreement, pursuant to a vote of directors or any committee thereof or a vote of
shareholders, as a matter of law or otherwise, either as to action in his
official capacity or as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. No person shall be entitled to indemnification pursuant to this
Article 8 in relation to any matter as to which indemnification shall not be
permitted by law.

ARTICLE 10.

In performing his duties, a director of the Corporation shall be entitled
to rely on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by (A)
one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented, (B)
counsel, public accountants or other persons as to matters which the director
reasonably believes to be within such person's professional or expert
competence, or (C) a committee of the Board of Directors upon which he does not
serve, duly designated in accordance with a provision of the by-laws, as to
matters within its designated authority, which committee the director deems to
merit confidence, but he shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would cause such
reliance to be unwarranted. A person who so performs his duties shall have no
liability to the Corporation (whether asserted directly or derivatively) by
reason of being or having been a director of the Corporation.

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<PAGE>

No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except to the extent that the foregoing exemption from
liability is not permitted under the applicable provision of the Texas
Miscellaneous Corporation Laws Act (or any successor or replacement statute) as
the same now exists or may hereafter be amended. Any repeal or modification of
the foregoing paragraph shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.

ARTICLE 11.

Special meetings of the shareholders of the Corporation may be called only
(1) by the Chairman of the Board, by the President, by a majority of the Board
of Directors, or by such other person or persons as may be authorized in the
Bylaws or (2) by the holders of 50% of the outstanding shares of the Company
entitled to vote at the proposed special meeting.

ARTICLE 12.

The address of the initial registered office of the Corporation is 9600
Bellaire, Suite 252, Houston, Texas 77036 and the name of the initial registered
agent of the Corporation at such address is Don J. Wang.

ARTICLE 13.

The initial Board of Directors shall consist of ten (10) members who shall
serve as directors until the first annual meeting of shareholders or until their
successors shall have been elected and qualified, and whose names and addresses
are as follows:

Name Address
- ---- -------
Helen F. Chen 9600 Bellaire, Suite 252
Houston, Texas 77036

Tommy F. Chen 9600 Bellaire, Suite 252
Houston, Texas 77036

May P. Chu 9600 Bellaire, Suite 252
Houston, Texas 77036

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Name Address
- ---- -------
Jane W. Kwan 9600 Bellaire, Suite 252
Houston, Texas 77036

William C. C. Kwan 9600 Bellaire, Suite 252
Houston, Texas 77036

Edward Lee 9600 Bellaire, Suite 252
Houston, Texas 77036

John Lee 9600 Bellaire, Suite 252
Houston, Texas 77036

David Tai 9600 Bellaire, Suite 252
Houston, Texas 77036

Joe Ting 9600 Bellaire, Suite 252
Houston, Texas 77036

Don J. Wang 9600 Bellaire, Suite 252
Houston, Texas 77036

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<PAGE>

AMENDED AND RESTATED BYLAWS

METROCORP BANCSHARES, INC.

A Texas Corporation

<PAGE>

TABLE OF CONTENTS
<TABLE>
Page
Article 1
Offices
<S> <C>

Section 1.1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Article 2
Shareholders

Section 2.1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.2. Quorum; Adjournment of Meetings. . . . . . . . . . . . . . . . . . .1
Section 2.3. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.4. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.6. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.7. Shareholder List. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.8. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.9. Voting; Election; Inspectors. . . . . . . . . . . . . . . . . . . . .4
Section 2.10. Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.11. Notifications of Nominations and Proposed Business. . . . . . . . . .5
Section 2.12. Treasury Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Article 3
Board of Directors

Section 3.1. Power; Number; Term of Office . . . . . . . . . . . . . . . . . . . .6
Section 3.2. Classified Board. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.3. Quorum; Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.4. Place of Meetings; Order of Business. . . . . . . . . . . . . . . . .7
Section 3.5. First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.6. Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.7. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.8. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.9. Vacancies; Increases in the Number of Directors . . . . . . . . . . .8
Section 3.10. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

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<PAGE>

Section 3.11. Action Without a Meeting; Telephone Conference Meeting. . . . . . . .8
Section 3.12. Approval or Ratification of Acts or Contracts by Shareholders . . . .9

Article 4
Committees

Section 4.1. Designation; Powers . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 4.2. Procedure; Meetings; Quorum . . . . . . . . . . . . . . . . . . . . .9
Section 4.3. Substitution and Removal of Members; Vacancies. . . . . . . . . . . 10

Article 5
Officers

Section 5.1. Number, Titles and Term of Office . . . . . . . . . . . . . . . . . 10
Section 5.2. Powers and Duties of the Chairman of the Board. . . . . . . . . . . 10
Section 5.3. Powers and Duties of the President. . . . . . . . . . . . . . . . . 11
Section 5.4. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.5. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.6. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.7. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.8. Assistant Treasurers. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.9. Action with Respect to Securities of Other Corporations . . . . . . 12
Section 5.10. Delegation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Article 6
Capital Stock

Section 6.1. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2. Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.3. Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.4. Regulations Regarding Certificates. . . . . . . . . . . . . . . . . 13
Section 6.5. Lost or Destroyed Certificates. . . . . . . . . . . . . . . . . . . 13

Article 7
Miscellaneous Provisions

Section 7.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.2. Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.3. Notice and Waiver of Notice . . . . . . . . . . . . . . . . . . . . 14

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Section 7.4. Facsimile Signatures. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.5. Reliance upon Books, Reports and Records. . . . . . . . . . . . . . 15
Section 7.6. Application of Bylaws . . . . . . . . . . . . . . . . . . . . . . . 15

Article 8
Indemnification of Officers and Directors

Section 8.1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.2. Nonexclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.4. Witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Article 9
Amendments

Section 9.1. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>

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<PAGE>

AMENDED AND RESTATED BYLAWS

METROCORP BANCSHARES, INC.

Article 1
OFFICES

SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation required by the State of Texas to be maintained in the State of
Texas shall be the registered office named in the Articles of Incorporation
of the Corporation, or such other office as may be designated from time to
time by the Board of Directors in the manner provided by law.

SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation
may require.

Article 2
SHAREHOLDERS

SECTION 2.1. PLACE OF MEETINGS. All meetings of the shareholders
shall be held at the principal office of the Corporation, or at such other
place within or without the State of Texas as shall be specified or fixed in
the notices or waivers of notice thereof.

SECTION 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise
required by law or provided in the Articles of Incorporation of the
Corporation or these Bylaws, the holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of
shareholders for the transaction of business. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.

Notwithstanding the other provisions of the Articles of Incorporation of
the Corporation or these Bylaws, the chairman of the meeting or the holders
of a majority of the issued and outstanding stock, present in person or
represented by proxy and entitled to vote thereat, at any meeting of
shareholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or
if after

<PAGE>

the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at such meeting. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally called.

SECTION 2.3. ANNUAL MEETINGS. An annual meeting of the shareholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the State of Texas), on such
date, and at such time as the Board of Directors shall fix and set forth in
the notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of shareholders.

SECTION 2.4. SPECIAL MEETINGS. Unless otherwise provided in the
Articles of Incorporation of the Corporation, special meetings of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Board, by the President, by a majority of the Board of
Directors, or by a majority of the executive committee (if any) or by the
holders of 50% of the outstanding shares of the Company entitled to vote at
the proposed special meeting, at such time and at such place as may be stated
in the notice of the meeting. Business transacted at a special meeting shall
be confined to the purpose(s) stated in the notice of such meeting.

SECTION 2.5. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors of the Corporation may fix
a date as the record date for any such determination of shareholders, which
record date shall not precede the date on which the resolutions fixing the
record date are adopted and which record date shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting of
shareholders, nor more than sixty (60) days prior to any other action to
which such record date relates.

If the Board of Directors does not fix a record date for any meeting of
the shareholders, the record date for determining shareholders entitled to
notice of or to vote at such meeting shall be at the close of business on
the day next preceding the day on which notice is given, or, if in accordance
with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining shareholders for any other purpose (other than
the consenting to corporate action in writing without a meeting) shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record
entitled to notice of or to vote at a meeting of

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<PAGE>

shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.

SECTION 2.6. NOTICE OF MEETINGS. Written notice of the place, date
and hour of all meetings, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given by or at the
direction of the Board of Directors or the other person(s) calling the
meeting to each shareholder entitled to vote thereat not less than ten (10)
nor more than sixty (60) days before the date of the meeting. Such notice
may be delivered either personally or by mail. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
shareholder at such shareholder's address as it appears on the records of the
Corporation.

SECTION 2.7. SHAREHOLDER LIST. A complete list of shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical
order for each class of stock and showing the address of each such
shareholder and the number of shares registered in the name of such
shareholder, shall be open to the examination of any shareholder, for any
purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The shareholder list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present.

SECTION 2.8. PROXIES. Each shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to a corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy. Proxies for use at any meeting of shareholders shall be filed
with the Secretary, or such other officer as the Board of Directors may from
time to time determine by resolution, before or at the time of the meeting.
All proxies shall be received and taken charge of and all ballots shall be
received and canvassed by the secretary of the meeting, who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in which
event such inspector or inspectors shall decide all such questions.

No proxy shall be valid after eleven (11) months from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.

Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting or giving consents
thereby conferred, or if only one be present, then such powers may be
exercised by that

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<PAGE>

one; or, if an even number attend and a majority do not agree on any
particular issue, each proxy so attending shall be entitled to exercise such
powers in respect of such portion of the shares as is equal to the reciprocal
of the fraction equal to the number of proxies representing such shares
divided by the total number of shares represented by such proxies.

SECTION 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required
by law or provided in the Articles of Incorporation of the Corporation, each
shareholder shall on each matter submitted to a vote at a meeting of
shareholders have one vote for each share of the stock entitled to vote which
is registered in his name on the record date for the meeting. For the
purposes hereof, each election to fill a directorship shall constitute a
separate matter. Shares registered in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the
bylaws (or comparable body) of such corporation may determine. Shares
registered in the name of a deceased person may be voted by the executor or
administrator of such person's estate, either in person or by proxy.

All voting, except as required by the Articles of Incorporation of the
Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by shareholders holding a majority of the issued and outstanding
stock present in person or by proxy at any meeting a stock vote shall be
taken. Every stock vote shall be taken by written ballots, each of which
shall state the name of the shareholder or proxy voting and such other
information as may be required under the procedure established for the
meeting. All elections of directors shall be by written ballots, unless
otherwise provided in the Articles of Incorporation of the Corporation.

At any meeting at which a vote is taken by written ballots, the chairman
of the meeting may appoint one or more inspectors, each of whom shall
subscribe an oath or affirmation to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. Such inspector shall receive the written
ballots, count the votes, and make and sign a certificate of the result
thereof. The chairman of the meeting may appoint any person to serve as
inspector, except no candidate for the office of director shall be appointed
as an inspector.

Unless otherwise provided in the Articles of Incorporation of the
Corporation, cumulative voting for the election of directors shall be
prohibited.

SECTION 2.10. CONDUCT OF MEETINGS. The meetings of the shareholders
shall be presided over by the Chairman of the Board, or, if the Chairman of
the Board is not present, by the President, or, if the President is not
present, by any Vice President, or if no Vice President is present, by a
chairman elected at the meeting. The Secretary of the Corporation, if
present, shall act as secretary of such meetings, or, if the Secretary is not
present, an Assistant Secretary shall so act; if neither the

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<PAGE>

Secretary or an Assistant Secretary is present, then a secretary shall be
appointed by the chairman of the meeting.

The chairman of any meeting of shareholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in
order.

SECTION 2.11. NOTIFICATIONS OF NOMINATIONS AND PROPOSED BUSINESS.
Subject to the rights of holders of any class of capital stock of the
Corporation (other than the common stock), nominations for the election of
directors and proposals for business to be brought before any shareholder
meeting may be made by the Board of Directors or by any shareholder entitled
to vote in the election of directors generally. However, any such
shareholder may nominate one or more persons for election as directors at a
meeting or propose business to be brought before a meeting, or both, only if
such shareholder has given timely notice in proper written form of his intent
to make such nomination or nominations or to propose such business. To be
timely, a shareholder's notice must be delivered to or mailed and received by
the Secretary of the Corporation not later than sixty (60) days prior to such
meeting. To be in proper written form, a shareholder's notice to the
Secretary shall set forth:

(i) the name and address of the shareholder who intends to make
the nominations or propose the business and, in the case of nominations for
the election of directors, of the person or persons to be nominated;

(ii) a representation that the shareholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or propose the
business specified in the notice;

(iii) if applicable, a description of all arrangements or
understandings between the shareholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder;

(iv) such other information regarding each nominee or each matter
of business to be proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated or the
matter been proposed by the Board of Directors; and

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<PAGE>

(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.

A nomination of any person or proposal of any business not made in
compliance with the foregoing procedures shall not be eligible to be voted
upon by the shareholders at the meeting.

SECTION 2.12. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not
be counted for quorum purposes. Nothing in this Section 2.11 shall be
construed as limiting the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.

Article 3
BOARD OF DIRECTORS

SECTION 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the Articles of
Incorporation of the Corporation, the Board of Directors may exercise all the
powers of the Corporation.

The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the
Board of Directors). If the Board of Directors makes no such determination,
the number of directors shall be three. Each director shall hold office for
the term for which such director is elected, and until such director's
successor shall have been elected and qualified or until such director's
earlier death, resignation or removal.

Unless otherwise provided in the Articles of Incorporation of the
Corporation, directors need not be shareholders nor residents of the State of
Texas.

SECTION 3.2. CLASSIFIED BOARD. The directors of the Corporation shall
be divided into three classes, with respect to the time that they severally
hold office, as nearly equal in number as possible, with the initial term of
office of the first class of directors (the "Class I Directors") to expire at
the 1999 annual meeting of holders of capital stock of the Corporation, the
initial term of office of the second class of directors (the "Class II
Directors") to expire at the 2000 annual meeting of holders of capital stock
of the Corporation and the initial term of office of the third class of
directors (the "Class III Directors") to expire at the 2001 annual meeting of
holders of capital stock of the Corporation. Directors elected to succeed
those directors whose terms have thereupon expired shall be elected for a
term of office to expire at the third succeeding annual meeting of holders of
capital

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<PAGE>

stock of the Corporation after their election. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so
as to maintain or attain, if possible, the equality of the number of
directors in each class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. If such equality is not
possible, the increase or decrease shall be apportioned among the classes in
such a way that the difference in the number of directors in any two classes
shall not exceed one.

SECTION 3.3. QUORUM; VOTING. Unless otherwise provided in the
Articles of Incorporation of the Corporation, a majority of the number of
directors fixed in accordance with Section 3.1 shall constitute a quorum for
the transaction of business of the Board of Directors and the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.

SECTION 3.4. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Texas, as the Board of Directors may from time
to time determine. At all meetings of the Board of Directors business shall
be transacted in such order as shall from time to time be determined by the
Chairman of the Board, or in the Chairman of the Board's absence by the
President, or in the President's absence by the Vice President, or by the
Board of Directors.

SECTION 3.5. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of the shareholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at
which a quorum shall be present, held after the annual meeting of
shareholders, the Board of Directors shall elect the officers of the
Corporation.

SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board, or in the absence of the Chairman
of the Board, by the President, or in the President's absence, by the Vice
President, or in the absence of the Vice President, by another officer of the
Corporation. Notice of such regular meetings shall not be required.

SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or, on
the written request of any director, by the Secretary, in each case on at
least twenty-four (24) hours personal, written, telegraphic, cable or
wireless notice to each director. Such notice, or any waiver thereof
pursuant to Article 7, Section 7.3 hereof, need not state the purpose or
purposes of such meeting, except as may otherwise be

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required by law or provided for in the Articles of Incorporation of the
Corporation or these Bylaws. Meetings may be held at any time without notice
if all the directors are present or if those not present waive notice of the
meeting in writing.

SECTION 3.8. REMOVAL. Any director or the entire Board of Directors
may be removed, but only for cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.

SECTION 3.9. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Unless
otherwise provided in the Articles of Incorporation of the Corporation,
vacancies existing on the Board of Directors for any reason may be filled by
the affirmative vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director; and any director so
chosen shall hold office until the next annual meeting held for the election
of directors of the class of directors to which such director has been
appointed and until such director's successor shall have been elected and
qualified, or until such director's earlier death, resignation or removal.

SECTION 3.10. COMPENSATION. Directors and members of standing
committees may receive such compensation as the Board of Directors from time
to time shall determine to be appropriate, and shall be reimbursed for all
reasonable expenses incurred in attending and returning from meetings of the
Board of Directors.

SECTION 3.11. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the Articles of Incorporation of the
Corporation, any action required or permitted to be taken at any meeting of
the Board of Directors or any committee designated by the Board of Directors
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors
or committee. Such consent shall have the same force and effect as a
unanimous vote at a meeting, and may be stated as such in any document or
instrument filed with the Secretary of State of the State of Texas.

Unless otherwise restricted by the Articles of Incorporation of the
Corporation, subject to the requirement for notice of meetings, members of
the Board of Directors, or members of any committee designated by the Board
of Directors, may participate in a meeting of such Board of Directors or
committee, as the case may be, by means of a conference telephone connection
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened.

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SECTION 3.12. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
SHAREHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
shareholders, or at any special meeting of the shareholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the shareholders holding a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that a quorum is present) shall be as valid and as binding upon the
Corporation and upon all the shareholders as if it has been approved or
ratified by every shareholder of the Corporation. In addition, any such act
or contract may be approved or ratified by the written consent of
shareholders holding a majority of the issued and outstanding shares of
capital stock of the Corporation entitled to vote, and such consent shall be
as valid and binding upon the Corporation and upon all the shareholders as if
it had been approved or ratified by every shareholder of the Corporation.

Article 4
COMMITTEES

SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee,
with each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such
of the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation as may be provided in such
resolution, except that no such committee shall have the power or authority
of the Board of Directors in reference to amending the Articles of
Incorporation of the Corporation, adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing these Bylaws or adopting new bylaws for the Corporation. Any such
designated committee may authorize the seal of the Corporation to be affixed
to all papers which may require it. In addition to the above, such committee
or committees shall have such other powers and limitations of authority as
may be determined from time to time by the Board of Directors.

SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the
Board of Directors at its meeting next succeeding such action, shall fix its
own rules or procedures, and shall meet at such times and at such place or
places as may be provided by such rules, or by such committee or the Board of
Directors. Should a committee fail to fix its own rules, the provisions of
these Bylaws, pertaining to the calling of meetings and conduct of business
by the Board of Directors, shall apply as nearly as may be possible. At
every meeting

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of any such committee, the presence of a majority of all the members thereof
shall constitute a quorum, except as provided in Section 4.3 of this Article
4, and the affirmative vote of a majority of the members present shall be
necessary for the adoption by it of any resolution.

SECTION 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS; VACANCIES. The
Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of such committee. In the absence or disqualification of a member of
a committee, the member or members present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member. The Board of
Directors shall have the power at any time to remove any member(s) of a
committee and to appoint other directors in lieu of the person(s) so removed
and shall also have the power to fill vacancies in a committee.

Article 5
OFFICERS

SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice
President or Senior Vice President), a Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, one or more Assistant Secretaries and one or
more Assistant Treasurers). Each officer shall hold office until such
officer's successor shall be duly elected and shall qualify or until such
officer's death or until such officer shall resign or shall have been
removed. Any number of offices may be held by the same person, unless the
Articles of Incorporation of the Corporation provide otherwise. Except for
the Chairman of the Board, no officer need be a director.

SECTION 5.2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board shall be the chief executive officer of the
Corporation. Subject to the control of the Board of Directors and the
Executive Committee (if any), the Chairman of the Board shall have general
executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities; may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation and may sign all certificates for shares of capital stock of the
Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
Chairman of the Board by the Board of Directors. The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board of
Directors.

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<PAGE>

SECTION 5.3. POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of
Directors otherwise determines, the President shall have the authority to
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation; and, unless the Board of
Directors otherwise determines, the President shall, in the absence of the
Chairman of the Board or if there be no Chairman of the Board, preside at all
meetings of the shareholders and of the Board of Directors; and the
President shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to the President
by the Board of Directors or the Chairman of the Board.

SECTION 5.4. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of
the Corporation, except as otherwise limited in writing by the Chairman of
the Board or the President of the Corporation. Each Vice President shall
have such other powers and duties as from time to time may be assigned to
such Vice President by the Board of Directors, the Chairman of the Board or
the President.

SECTION 5.5. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and
the shareholders, in books provided for that purpose; shall attend to the
giving and serving of all notices; may in the name of the Corporation affix
the seal of the Corporation to all contracts and attest the affixation of the
seal of the Corporation thereto; may sign with the other appointed officers
all certificates for shares of capital stock of the Corporation; shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which
shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; shall
have such other powers and duties as designated in these Bylaws and as from
time to time may be assigned to the Secretary by the Board of Directors, the
Chairman of the Board or the President; and shall in general perform all
acts incident to the office of Secretary, subject to the control of the Board
of Directors, the Chairman of the Board or the President.

SECTION 5.6. ASSISTANT SECRETARIES. Each Assistant Secretary shall
have the usual powers and duties pertaining to such offices, together with
such other powers and duties as designated in these Bylaws and as from time
to time may be assigned to an Assistant Secretary by the Board of Directors,
the Chairman of the Board, the President or the Secretary. The Assistant
Secretaries shall exercise the powers of the Secretary during that officer's
absence or inability or refusal to act.

SECTION 5.7. TREASURER. The Treasurer shall have responsibility for
the custody and control of all the funds and securities of the Corporation,
and shall have such other powers and duties as designated in these Bylaws and
as from time to time may be assigned to the Treasurer by the Board of
Directors, the Chairman of the Board or the President. The Treasurer shall
perform all acts

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incident to the position of Treasurer, subject to the control of the Board of
Directors, the Chairman of the Board or the President; and the Treasurer
shall, if required by the Board of Directors, give such bond for the faithful
discharge of the Treasurer's duties in such form as the Board of Directors
may require.

SECTION 5.8. ASSISTANT TREASURERS. Each Assistant Treasurer shall
have the usual powers and duties pertaining to such office, together with
such other powers and duties as designated in these Bylaws and as from time
to time may be assigned to each Assistant Treasurer by the Board of
Directors, the Chairman of the Board, the President, or the Treasurer. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.

SECTION 5.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chairman of the
Board or the President, together with the Secretary or any Assistant
Secretary shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and
all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.

SECTION 5.10. DELEGATION. For any reason that the Board of Directors
may deem sufficient, the Board of Directors may, except where otherwise
provided by statute, delegate the powers or duties of any officer to any
other person, and may authorize any officer to delegate specified duties of
such office to any other person. Any such delegation or authorization by the
Board shall be effected from time to time by resolution of the Board of
Directors.

Article 6
CAPITAL STOCK

SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of
the capital stock of the Corporation shall be in such form, not inconsistent
with that required by law and the Articles of Incorporation of the
Corporation, as shall be approved by the Board of Directors. Every holder of
stock represented by certificates shall be entitled to have a certificate
signed by or in the name of the Corporation by the Chairman of the Board, the
President or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation representing the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, certifying the class and series of such shares) owned by
such shareholder which are registered in certified form; provided, however,
that any of or all the signatures on the certificate may be facsimile. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or at the office of such transfer agent or transfer agents as the
Board of Directors may from

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<PAGE>

time to time determine. In case any officer, transfer agent or registrar who
shall have signed or whose facsimile signature or signatures shall have been
placed upon any such certificate or certificates shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation
as they are issued and shall exhibit the holder's name and number of shares.

SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.

SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled
to treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Texas.

SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock
of the Corporation.

SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors
may determine the conditions upon which the Corporation may issue a new
certificate of stock in place of a certificate theretofore issued by it which
is alleged to have been lost, stolen or destroyed and may require the owner
of such certificate or such owner's legal representative to give bond, with
surety sufficient to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims which may arise by reason of
the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate in the place of the one so lost, stolen or
destroyed.

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Article 7
MISCELLANEOUS PROVISIONS

SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January of each year.

SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the
state of its incorporation, which seal shall be in the charge of the
Secretary and shall be affixed to certificates of stock, debentures, bonds,
and other documents, in accordance with the direction of the Board of
Directors or a committee thereof, and as may be required by law; however,
the Secretary may, if the Secretary deems it expedient, have a facsimile of
the corporate seal inscribed on any such certificates of stock, debentures,
bonds, contract or other documents. Duplicates of the seal may be kept for
use by any Assistant Secretary.

SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the Articles of Incorporation of the Corporation
or under the provisions of these Bylaws, said notice shall be deemed to be
sufficient if given (i) by telegraphic, cable or wireless transmission
(including by telecopy or facsimile transmission) or (ii) by deposit of the
same in a post office box or by delivery to an overnight courier service
company in a sealed prepaid wrapper addressed to the person entitled thereto
at such person's post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing or delivery to courier, as the case may be.

Whenever notice is required to be given by law, the Articles of
Incorporation of the Corporation or under any of the provisions of these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent
to notice. Attendance of a person, including without limitation a director,
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
shareholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Articles
of Incorporation of the Corporation or these Bylaws.

SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation
may be used whenever and as authorized by the Board of Directors.

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SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of
the Board of Directors, or a member of any committee designated by the Board
of Directors, shall, in the performance of such person's duties, be protected
to the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.

SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions
of these Bylaws is or may be in conflict with any law of the United States,
of the State of Texas or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these
Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law, and shall in all other respects be in
full force and effect.

Article 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS

SECTION 8.1. INDEMNIFICATION. As permitted by Section G of Article
2.02-1 of the Texas Business Corporation Act or any successor statute (the
"Indemnification Article"), the Corporation hereby:

(a) makes mandatory the indemnification permitted under Section B
of the Indemnification Article as contemplated by Section G thereof;

(b) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a former or present director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding upon
such director's compliance with the requirements of Section K of the
Indemnification Article; and

(c) extends the mandatory indemnification referred to in Section
8.1(a) above and the mandatory payment or reimbursement of expenses referred
to in Section 8.1(b) above (i) to all former or present officers of the
Corporation and (ii) to all persons who are or were serving at the request of
the Corporation as a director, officer, partner or trustee of another foreign
or domestic corporation, partnership, joint venture, trust or employee
benefit plan, to the same extent that the Corporation is obligated to
indemnify and pay or reimburse expenses to directors.

SECTION 8.2. NONEXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified may be entitled under any bylaw, agreement, authorization of
shareholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such

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office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall enure to the benefit of such person's
heirs and legal representatives.

SECTION 8.3. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation or who is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
business, foreign, domestic or non-profit corporation, partnership, joint
venture, sole proprietorship, trust or other enterprise or employee benefit
plan, against any liability asserted against such person and incurred by such
person in such a capacity or arising out of such person's status as such a
person, whether or not the Corporation would have the power to indemnify such
person against that liability under the provisions of this Article or the
Texas Business Corporation Act.

SECTION 8.4. WITNESSES. Notwithstanding any other provision of this
Article, the Corporation shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's
appearance as a witness or other participation in a proceeding at a time when
such person is not a named defendant or respondent in such proceeding.

Article 9
AMENDMENTS

SECTION 9.1. AMENDMENTS. The Board of Directors shall have the power
to adopt, amend and repeal from time to time Bylaws of the Corporation. The
shareholders of the Corporation shall not have the power to adopt, amend or
repeal the Bylaws of the Corporation.

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August 26, 1998

MetroCorp Bancshares, Inc.
9600 Bellaire Blvd, Suite 252
Houston, Texas 77036

Gentlemen:

We have acted as counsel for MetroCorp Bancshares, Inc., a Texas corporation
("Company"), in connection with the Registration Statement on Form S-1
(Registration No. 333- ), as amended, filed by the Company
under the Securities Act of 1933, as amended ("Registration Statement"), with
respect to up to a maximum of 1,600,000 shares of common stock, $1.00 par
value ("Common Stock"), of the Company to be issued pursuant to an
Underwriting Agreement dated ________, 1998 between the Company and Legg
Mason Wood Walker, Incorporated (the "Underwriting Agreement").

In such capacity we are familiar with the Articles of Incorporation, as
amended, and the Amended and Restated Bylaws of the Company, the Registration
Statement and the Underwriting Agreement and have examined all statutes,
records, instruments and documents as we have deemed necessary for purposes
hereof. In addition, we have relied on certificates of officers of the
Company and of public officials and others as to certain matters of fact
relating to this opinion and have made such investigations of law as we have
deemed necessary and relevant as a basis hereof. We have assumed the
genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to original documents and
records of all documents and records submitted to us as copies and the
truthfulness of all statements of fact contained therein.

Based on the foregoing and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:

1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Texas.

<PAGE>
MetroCorp Bancshares, Inc.
September 1, 1998
Page 2

2. The shares of Common Stock proposed to be sold pursuant to the
Underwriting Agreement will, when issued in accordance with the terms
thereof, be validly issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to us under the caption "Legal Matters."

Very truly yours,

Bracewell & Patterson, L.L.P.

WTL/bev

<PAGE>

EXHIBIT 10.1

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of July 28, 1998
(hereinafter called the "Agreement"), is by and among MetroCorp Bancshares,
Inc., a Texas corporation (hereinafter called the "Company"), MetroBank, N.A., a
banking association incorporated and organized under the laws of the United
States of America (hereinafter called the "Bank") and MC Bancshares of Delaware,
Inc., a Delaware corporation (hereinafter called the "Delaware Company").

INTRODUCTION

This Agreement provides for (i) the incorporation and organization of a new
interim national bank ("New Bank") which will, at the time of consummation of
the transactions contemplated herein, be a subsidiary of the Company, (ii) the
subsequent consolidation of the Bank with the New Bank (the "Consolidation") in
connection with which each share of common capital stock of the Bank, $5.00 par
value ("Bank Common Stock"), issued and outstanding on the Effective Date of the
Consolidation (as hereafter defined), will be exchanged for four (4) shares of
common stock, $1.00 par value, of the Company ("Common Stock") or cash payments,
all pursuant to the Plan of Consolidation by and among the Bank, the New Bank,
and the Company, a form of which is attached hereto as EXHIBIT A and all of the
terms of which are incorporated herein by reference for all purposes (the "Plan
of Consolidation"), and (iii) the subsequent exchange by the Company of the Bank
Common Stock for shares of common capital stock of the Delaware Company (the
"Transfer"). All of the foregoing is for the purpose of allowing the Company to
acquire 100% of the issued and outstanding shares of Bank Common Stock which
will occur pursuant to certain transactions governed by the terms of Section 368
and other applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). In consideration of such premises and the mutual covenants and
agreements herein contained, the parties hereto agree as set forth below.

I.
PROPOSED CONSOLIDATION AND SUBSEQUENT TRANSACTION

Section 1.1. The Bank, the Company and the Delaware Company propose that
the Bank, the New Bank and the Company enter into the Plan of Consolidation with
such changes thereto as may be required by any federal or state regulatory
authority as a condition to approving the Consolidation and do not, in the
opinion of legal counsel to the Bank and the Company, materially alter the
rights of the stockholders of the Bank or of the New Bank.
<PAGE>

Section 1.2. Immediately following consummation of the Consolidation, the
Company will exchange all of the Bank Common Stock acquired by it, pursuant to
the Consolidation, for 1,000 shares of common capital stock of the Delaware
Company, so that following consummation of the Consolidation, the Delaware
Company will be a wholly owned subsidiary of the Company and the bank resulting
from the Consolidation will be a wholly owned subsidiary of the Delaware
Company.

Section 1.3. This Agreement sets forth certain representations, warranties
and covenants of the Bank, the Company and the Delaware Company, upon which the
Bank, the Company, the Delaware Company and the New Bank will rely in entering
into and consummating the Plan of Consolidation and other transactions
contemplated by this Agreement.

II.
REPRESENTATIONS AND WARRANTIES OF THE BANK

The Bank hereby represents and warrants to the Company and the Delaware
Company as follows:

Section 2.01. ORGANIZATION. The Bank is a banking association duly
organized, validly existing and in good standing under the laws of the United
States of America, and has full corporate power and authority to own its
properties, to engage in the business and activities now conducted by it and to
enter into this Agreement and the Plan of Consolidation. The Bank does not have
any subsidiaries. The Agreement has been duly executed by the Bank and
constitutes a binding agreement of the Bank enforceable against it in accordance
with its terms.

Section 2.02. CAPITALIZATION. The authorized capital stock of the Bank
consists of 2,000,000 shares of Bank Common Stock, $5.00 par value, 1,382,407 of
which are issued and outstanding. All such shares are validly issued, fully
paid, and nonassessable (except for possible assessment under 12 U.S.C. Section
55). There are no existing options, warrants, calls or commitments of any kind
obligating the Bank to issue any of its authorized and unissued capital stock.

Section 2.03. APPROVALS. The Board of Directors of the Bank has approved
this Agreement and the transactions contemplated hereby, subject to the approval
thereof by the stockholders of the Bank as required by law. This Agreement has
been duly executed and delivered by the Bank and when executed by the Company
and the Delaware Company and duly approved by the stockholders of the Bank, it
will be a binding agreement of the Bank enforceable against it in accordance
with its terms.

Section 2.04. NO CONFLICT WITH OTHER INSTRUMENTS. Subject to the receipt
of all required

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regulatory approvals and compliance with all applicable federal and state
securities laws, the execution, delivery and performance of this Agreement,
the Plan of Consolidation and the transactions contemplated hereby and
thereby will not violate any provision of, or constitute a default under, any
order, writ, injunction or decree of any court or other governmental agency,
or any contract, agreement or instrument to which the Bank is a party or by
which it is bound, or constitute an event which with the lapse of time or
action by a third party could result in any default under any of the
foregoing or result in the creation of any lien, charge or encumbrance upon
any of the assets or properties of the Bank or upon the Bank Common Stock.

III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Bank and the Delaware
Company as follows:

Section 3.01. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, and
has full corporate power to own its properties, to carry on its business as now
being, and presently contemplated to be, conducted and to enter into this
Agreement and the Plan of Consolidation. The Company does not have
subsidiaries. The Agreement has been duly executed by the Company and
constitutes a binding agreement of the Company enforceable against it in
accordance with its terms.

Section 3.02. CAPITALIZATION. The authorized capital stock of the Company
is 20,000,000 shares of Common Stock, $1.00 par value, 1,000 shares of which are
validly issued and outstanding, fully paid and nonassessable. Other than as
provided by this Agreement and the Plan of Consolidation, there are no existing
options, warrants, calls or commitments of any kind obligating the Company to
issue any of its authorized and unissued capital stock.

Section 3.03. THE COMPANY COMMON STOCK. The Common Stock deliverable
pursuant to this Agreement and the Plan of Consolidation will, upon delivery, be
validly issued, fully paid and nonassessable.

Section 3.04. APPROVALS. The Board of Directors of the Company has
approved this Agreement and the transactions contemplated hereby, and no
approval by the stockholders of the Company is required by law in order to
consummate the transactions contemplated hereby.

Section 3.05. NO CONFLICT WITH OTHER INSTRUMENTS. Subject to the receipt
of all required regulatory approvals and compliance with all applicable federal
and state securities laws, the execution, delivery and performance of this
Agreement, the Plan of Consolidation and the

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transactions contemplated hereby and thereby will not violate any provision
of, or constitute a default under any order, writ, injunction or decree of
any court or other governmental agency, or any contract, agreement or
instrument to which the Company is a party or by which it is bound, or
constitute an event which with the lapse of time or action by a third party
could result in any default under any of the foregoing or result in the
creation of any lien, charge or encumbrance upon any of the assets or
properties of the Company or upon shares of capital stock of the Company.

IV.
REPRESENTATIONS AND WARRANTIES OF THE DELAWARE COMPANY

The Delaware Company hereby represents and warrants to the Bank and the
Company as follows:

Section 4.01. ORGANIZATION. The Delaware Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full corporate power to own its properties, to carry on its
business as now being, and presently contemplated to be, conducted and to enter
into this Agreement. The Delaware Company does not have any subsidiaries. The
Agreement has been duly executed by the Delaware Company and constitutes a
binding agreement of the Delaware Company enforceable against it in accordance
with its terms.

Section 4.02. CAPITALIZATION. The authorized capital stock of the
Delaware Company is 3,000 shares of common stock, $0.01 par value (the "Delaware
Company Common Stock"), no shares of which are issued and outstanding. There
are no existing options, warrants, calls or commitments of any kind obligating
the Delaware Company to issue any of its authorized and unissued capital stock.

Section 4.03. THE DELAWARE COMPANY COMMON STOCK. The Delaware Company
Common Stock deliverable to the Company pursuant to this Agreement will, upon
delivery, be validly issued, fully paid and nonassessable.

Section 4.04. APPROVALS. The Board of Directors of the Delaware Company
has approved this Agreement and the transactions contemplated hereby, and no
approval by the stockholders of the Delaware Company is required by law in order
to consummate the transactions contemplated hereby.

Section 4.05. NO CONFLICT WITH OTHER INSTRUMENTS. Subject to the receipt
of all required regulatory approvals and compliance with all applicable federal
and state securities laws, the execution, delivery and performance of this
Agreement and the transactions contemplated hereby will not violate any
provision of, or constitute a default under any order, writ, injunction or
decree

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<PAGE>

of any court or other governmental agency, or any contract, agreement or
instrument to which the Delaware Company is a party or by which it is bound, or
constitute an event which with the lapse of time or action by a third party
could result in any default under any of the foregoing or result in the creation
of any lien, charge or encumbrance upon any of the assets or properties of the
Delaware Company or upon shares of capital stock of the Delaware Company.

V.
COVENANTS OF THE BANK

The Bank hereby covenants to and with the Company and the Delaware Company
as follows:

Section 5.01. STOCKHOLDER APPROVAL AND BEST EFFORTS. The Bank will, as
soon as practicable, present for the approval of its stockholders this
Agreement, the Plan of Consolidation and the transactions contemplated hereby
and thereby. The Board of Directors of the Bank will use its best efforts to
secure the approval by the holders of the requisite number of shares of Bank
Common Stock of this Agreement, the Plan of Consolidation and the transactions
contemplated hereby and thereby (but this provision shall not be interpreted as
requiring such directors in their capacity as stockholders of the Bank to vote
their shares of Bank Common Stock in favor of this Agreement or the Plan of
Consolidation) and will use its best efforts to take or cause to be taken all
other actions necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and the Plan of Consolidation, including such
actions as the Company or the Delaware Company may reasonably consider
necessary, proper or advisable in connection with filing applications and
registration statements with, or obtaining approvals from all regulatory
authorities having jurisdiction over the transactions contemplated by this
Agreement and the Plan of Consolidation.

The information delivered by the Bank to its stockholders with respect to
their consideration of the transactions contemplated hereby (except insofar as
such information is furnished by or based upon information furnished by the
Company, the Delaware Company or the New Bank) will not contain any statement
which, at the time and in the light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or which omits to
state any material fact necessary in order to make the statements made therein
not false or misleading.

Section 5.02. EXISTENCE. From and after the date of this Agreement to the
Effective Date of the Consolidation, the Bank will maintain its corporate
existence and without the written consent of the Company (i) will not amend its
charter or by-laws; and (ii) will not issue any securities.

Section 5.03. ACCESS TO PROPERTIES AND RECORDS. The Bank will afford to
the officers and authorized representatives of the Company and the Delaware
Company full access to the properties, books and records of the Bank in order
that the Company and the Delaware Company may have full

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opportunity to make such reasonable investigation as they shall desire to
make of the affairs of the Bank, and the officers of the Bank will furnish
the Company and the Delaware Company with such additional financial and
operating data and other information as to the business and properties of the
Bank as the Company and the Delaware Company shall, from time to time,
reasonably request.

Section 5.04. INFORMATION FOR APPLICATIONS AND STATEMENTS. The Bank will
furnish the Company and the Delaware Company with all information concerning the
Bank required for inclusion in any application or statement to be made by the
Company or the Delaware Company to or filed by the Company or the Delaware
Company with any other governmental body in connection with the transactions
contemplated by this Agreement and the Plan of Consolidation or in connection
with any unrelated transactions during the pendency of this Agreement, and the
Bank represents and warrants that all information so furnished for such
statements and applications shall be true and correct in all material respects
without omission of any material fact required to be stated therein to make the
information not materially misleading.

Section 5.05. DISSEMINATION OF PROXY STATEMENTS. The Bank will mail to
each of its stockholders a proxy statement which shall cause its management to
solicit proxies pursuant thereto and shall cause the proxies granted in
connection with this Consolidation to be collected, tabulated and voted in
accordance with the instructions contained in such proxies respecting the
Consolidation.

VI.
COVENANTS OF THE COMPANY

The Company hereby covenants to and with the Bank and the Delaware Company
as follows:

Section 6.01. BEST EFFORTS. The Company will use its best efforts to
incorporate and organize the New Bank and to cause the New Bank to authorize,
adopt and approve the Plan of Consolidation and the transactions contemplated
thereby, and the Board of Directors of the Company will use its best efforts to
take or cause to be taken all other actions necessary, proper or advisable to
consummate this Agreement and the Plan of Consolidation, including such actions
as the Bank or the Delaware Company may reasonably consider necessary, proper or
advisable in connection with filing applications and other instruments with, or
obtaining approvals of, governmental bodies to the transactions contemplated by
this Agreement and the Plan of Consolidation.

Section 6.02. EXISTENCE. From and after the date of this Agreement to the
Effective Date, the Company (i) will maintain its corporate existence; (ii) will
not amend its charter, or by-laws; and (iii) will not issue any securities.

Section 6.03. INFORMATION FOR APPLICATIONS AND STATEMENTS. The Company
will furnish the

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Bank and the Delaware Company with all the information concerning the Company
and the New Bank required for inclusion in any application or statement to be
made by the Bank or the Delaware Company to any regulatory authority in
connection with the transactions contemplated by this Agreement, and it
represents and warrants that all information so furnished for such statements
and applications shall be true and correct in all material respects without
omission of any material fact required to be stated therein to make the
information furnished not materially misleading.

Section 6.04. ACCESS TO RECORDS. The Company will afford to the officers
and authorized representatives of the Bank and the Delaware Company full access
to the books and records of the Company in order that the Bank and the Delaware
Company may have full opportunity to make such reasonable investigation as they
shall desire to make of the affairs of the Company, and the officers of the
Company will furnish the Bank and the Delaware Company with such additional
financial data and other information as to the business of the Company as the
Bank or the Delaware Company shall, from time to time, reasonably request.

Section 6.05. ISSUANCE OF SHARES OF THE COMPANY COMMON STOCK AND CASH
PAYMENTS. The Company will issue and deliver, when and if required by the
provisions of the Plan of Consolidation, certificates representing the number of
duly authorized, issued and outstanding shares of Common Stock and such amounts
of cash into which the shares of Bank Common Stock are to be converted pursuant
to this Agreement and the Plan of Consolidation.

VII.
COVENANTS OF THE DELAWARE COMPANY

The Delaware Company hereby covenants to and with the Company and the Bank
as follows:

Section 7.01. BEST EFFORTS. The Delaware Company will use its best
efforts to take or cause to be taken all other actions necessary, proper or
advisable to consummate this Agreement, including such actions as the Bank or
the Company may reasonably consider necessary, proper or advisable in connection
with filing applications and other instruments with, or obtaining approvals of,
governmental bodies to the transactions contemplated by this Agreement and the
Plan of Consolidation.

Section 7.02. EXISTENCE. From and after the date of this Agreement to the
Effective Date, without the prior written consent of the Company, the Delaware
Company will maintain its corporate existence, will not amend its charter or
bylaws, will not issue any securities and will not declare or make any dividend
or other distribution with respect to the outstanding shares of the Delaware
Company Common Stock.

Section 7.03. INFORMATION FOR APPLICATIONS AND STATEMENTS. The Delaware
Company will

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<PAGE>

furnish the Bank and the Company with all the information concerning the
Delaware Company required for inclusion in any application or statement to be
made by the Bank or the Company to any regulatory authority in connection
with the transactions contemplated by this Agreement, and it represents and
warrants that all information so furnished for such statements and
applications shall be true and correct in all material respects without
omission of any material fact required to be stated therein to make the
information furnished not materially misleading.

Section 7.04. ACCESS TO RECORDS. The Delaware Company will afford to the
officers and authorized representatives of the Bank and the Company full access
to the books and records of the Delaware Company in order that the Bank and the
Company may have full opportunity to make such reasonable investigation as it
shall desire to make of the affairs of the Delaware Company, and the officers of
the Delaware Company will furnish the Bank with such additional financial data
and other information as to the business of the Delaware Company as the Bank or
the Company shall, from time to time, reasonably request.

Section 7.05. ISSUANCE OF SHARES OF THE DELAWARE COMPANY COMMON STOCK.
The Delaware Company will issue and deliver to the Company upon consummation of
the Consolidation 1,000 shares of capital stock of the Delaware Company Common
Stock.

VIII.
CLOSING

Section 8.01. CLOSING. On a mutually acceptable date (herein called the
"Closing Date") as soon as practicable within the 60 day period commencing with
the latest of the following dates:

(a) such date as may be prescribed by any federal or state
agency or authority pursuant to any applicable federal or state law, rule,
regulation or order, prior to which consummation of the Consolidation may
not be effected; or

(b) the date on which the transactions contemplated by this
Agreement have been approved by the stockholders of the Bank and the New
Bank in accordance with applicable law; or

(c) if the transactions contemplated by this Agreement are being
contested in any legal proceeding and the Company, the Delaware Company or
the Bank pursuant to Section 12.01 herein has elected to contest the same,
then the date that such court proceeding has been brought to a conclusion
favorable, in the judgment of the Company, the Delaware Company and the
Bank, to the consummation of the transactions contemplated herein, or such
prior date as the Company, the Delaware Company and the Bank shall elect
whether

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<PAGE>

or not such court proceeding has been brought to a conclusion,

a meeting ("Closing") will take place at which the parties to this Agreement
will exchange certificates, letters and other documents in order to determine
whether any condition exists which would permit the parties to this Agreement to
terminate this Agreement. If no such condition then exists or if no party
elects to exercise any right it may have to terminate this Agreement, then and
thereupon the appropriate parties shall execute such documents and instruments
as may be necessary or appropriate in order to effect the transactions
contemplated by this Agreement and the Plan of Consolidation.

The Closing shall take place at the principal office of the Bank in
Houston, Texas on the Closing Date, or at such other place to which the parties
may agree.

Section 8.02. EFFECTIVE DATE. This Agreement and the Plan of
Consolidation shall be ratified and confirmed by the affirmative vote of the
owners of record of two-thirds (2/3) of the Bank Common Stock and the capital
stock of the New Bank; and the Consolidation shall become effective at the time
specified in the approval of the Consolidation issued by the Office of the
Comptroller of the Currency (the "OCC"). The "Effective Date" of the
Consolidation as that term is used in this Agreement means the effective date of
the Consolidation under the Plan of Consolidation.

Section 8.03. TERMINATION.

(a) This Agreement and the Plan of Consolidation may be terminated by
action of the Board of Directors of either the Company, the Bank or the Delaware
Company at any time prior to the Effective Date if:

(i) there shall be any actual or threatened action or proceeding
by or before any court or any other governmental body which shall seek to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement and the Plan of Consolidation and which, in the judgment of such
Board or Boards of Directors, makes it inadvisable to proceed with the
Consolidation;

(ii) any of the transactions contemplated hereby or by the Plan
of Consolidation are disapproved by any regulatory authority whose approval
is required to consummate any of such transactions, or if, in the judgment
of such Board or Boards of Directors, there is a substantial likelihood
that any such approval will not be obtained or will be obtained only upon a
condition or conditions which would be unduly burdensome and that therefore
it is inadvisable to proceed with the Consolidation; or

(iii) the Consolidation shall not have become effective prior to
September 30,

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<PAGE>

1998, or such later date as shall have been approved by the Board of
Directors of each of the Company, the Delaware Company and the Bank.

(b) This Agreement and the Plan of Consolidation may be terminated at
any time prior to the Effective Date with the mutual consent of the Bank, the
Delaware Company and the Company upon the approval of such action by their
respective Boards of Directors.

IX.
CONDITIONS TO THE COMPANY'S OBLIGATIONS

The obligations of the Company under this Agreement are subject to the
satisfaction, at or prior to the Closing Date of the following conditions, which
may be waived by the Company in its sole discretion:

Section 9.01. COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Bank and the Delaware Company in this
Agreement were true when made and shall be true at the Closing Date with the
same force and effect as if such representations and warranties were made at and
as of the Closing Date and the Bank and the Delaware Company shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed and complied with prior to or at the Closing.

Section 9.02. ORGANIZATION OF THE NEW BANK. The New Bank shall have been
incorporated in accordance with the applicable provisions of the National Bank
Act, and the capitalization of the New Bank immediately prior to the Closing
shall be at least the amount indicated in the Plan of Consolidation.

Section 9.03. MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of the Bank, nor shall any event have occurred which with
the lapse of time may cause or create any material adverse change in the Bank's
financial condition, business or operations.

Section 9.04. DISSENTERS' RIGHTS AND NON-RESIDENTS OF TEXAS. The
aggregate number of shares of Bank Common Stock owned by those stockholders of
the Bank who have perfected and shall be entitled to exercise their dissenters'
rights and the aggregate number of shares of Bank Common Stock owned by those
stockholders who are residents of a state that requires registration of the
Common Stock to be issued in connection with the Consolidation where the Board
of Directors of the Company has determined that the costs of such registration
are unjustified (the "Ineligible Stockholders") shall not exceed 2% of the
issued and outstanding shares of Bank Common Stock.

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<PAGE>

Section 9.05. FEDERAL INCOME TAX CONSEQUENCES. The federal income tax
consequences of any of the transactions contemplated by this Agreement and the
Plan of Consolidation shall be satisfactory to the Company, in its sole
discretion.

Section 9.06. DIVIDEND PAYMENT BY BANK. There shall be no legal or
regulatory restrictions on the Bank's ability to pay an amount of dividends with
respect to the Bank Common Stock immediately following consummation of the
Consolidation which will be sufficient to allow the Company to (i) pay cash for
shares of Bank Common Stock owned by those stockholders of the Bank who exercise
their dissenters' rights; (ii) pay cash for shares of Bank Common Stock owned by
Ineligible Stockholders and (iii) pay organizational and other expenses incurred
by the Company and the Delaware Company in connection with the transactions
contemplated by this Agreement, the Plan of Consolidation, and the transactions
contemplated hereby and thereby.

X.
CONDITIONS TO OBLIGATIONS OF THE BANK

The obligations of the Bank under this Agreement are subject to the
satisfaction at or prior to the Closing Date, of the following conditions, which
may be waived by the Bank in its sole discretion:

Section 10.01. COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company and the Delaware Company in
this Agreement were true when made and shall be true as of the Closing Date with
the same force and effect as if such representations and warranties were made at
and as of the Closing, and the Company and the Delaware Company shall have
performed and complied with all covenants and conditions required by this
Agreement to be performed or complied with by the Company and the Delaware
Company prior to or at the Closing.

Section 10.02. MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of the Company or Delaware Company nor shall any event
have occurred which with the lapse of time may cause or create any material
adverse change in its financial condition, business or operations.

XI.
CONDITIONS TO OBLIGATIONS OF THE DELAWARE COMPANY

The obligations of the Delaware Company under this Agreement are subject to
the satisfaction at or prior to the Closing Date, of the following conditions,
which may be waived by the

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Delaware Company in its sole discretion:

Section 11.01. COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company and the Bank in this
Agreement were true when made and shall be true as of the Closing Date with the
same force and effect as if such representations and warranties were made at and
as of the Closing, and the Company and the Bank shall have performed and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by the Company and the Bank prior to or at the
Closing.

Section 11.02. MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of the Company or the Bank nor shall any event have
occurred which with the lapse of time may cause or create any material adverse
change in its financial condition, business or operations.

XII.
CONDITION TO RESPECTIVE OBLIGATIONS OF
THE COMPANY, THE DELAWARE COMPANY AND THE BANK

The respective obligations of the Company, the Delaware Company and the
Bank under this Agreement are subject to the satisfaction of the following
condition which may be waived by the Bank, the Delaware Company or the Company
in their respective sole discretion:

Section 12.01. GOVERNMENT APPROVALS. The Company, the Delaware Company,
the Bank and the New Bank shall have received the approval of the transactions
contemplated by this Agreement and the Plan of Consolidation from all necessary
governmental agencies and authorities, including the Board of Governors of the
Federal Reserve System and the OCC and such approvals and the transactions
contemplated hereby shall not have been contested by any federal or state
governmental authority or any third party (except stockholders asserting
dissenters' rights) by formal proceeding. It is understood that, if any contest
as aforesaid is brought by formal proceedings, the Company, the Delaware Company
or the Bank may, but shall not be obligated to, answer and defend such contest
or otherwise pursue the Consolidation over such objection.

Section 12.02. STOCKHOLDER APPROVALS. The holders of not less than
two-thirds (2/3) of the outstanding shares of the Bank Common Stock and the
capital stock of the New Bank shall have voted for the authorization and
approval of, and given their written consent to, this Agreement and the Plan of
Consolidation and the transactions contemplated by this Agreement and the Plan
of Consolidation. If requested by the Company, the Bank and the New Bank each
shall have delivered to the Company a certificate signed by the respective
Secretary and/or Cashier of each bank as to the details of such votes and
approvals, which certificate shall have attached to it as exhibits copies of

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<PAGE>

such written consents of the stockholders of the Bank and the New Bank.

XIII.
MISCELLANEOUS

Section 13.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Bank, the Delaware Company and the Company
contained in this Agreement shall survive the Closing hereunder and any
investigation by the Company, the Delaware Company or the Bank.

Section 13.02. AMENDMENTS. This Agreement may be amended only by a
writing signed by all parties hereto, at any time prior to the Closing Date with
respect to any of the terms contained herein, except that the provisions
regarding the number of shares of Common Stock to be received by and the amount
of cash to be paid to stockholders of the Bank pursuant to this Agreement and
the Plan of Consolidation shall not be changed subsequent to the approval of the
transactions provided for by this Agreement and the Plan of Consolidation by
such stockholders.

Section 13.03. NOTICES. Any notice given hereunder shall be in writing
and shall be mailed by first class mail, postage prepaid, to the parties at the
following addresses:

To the Company:

MetroCorp Bancshares, Inc.
9600 Bellaire, Suite 101
Houston, Texas 77036

Attention: Don J. Wang

To the Bank:

MetroBank, N.A.
9600 Bellaire, Suite 101
Houston, Texas 77036

Attention: Don J. Wang

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<PAGE>

To the Delaware Company:

MC Bancshares of Delaware, Inc.
c/o CT Corporation System
1209 Orange Street
Wilmington, Delaware 19801

Attention: Mr. Mark Ferrucci

Section 13.04. ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assigned by either party without the prior written
consent of the other party. All understandings and agreements heretofore made
between the parties hereto are merged in this Agreement which shall be the sole
expression of the agreement of the parties respecting the Consolidation.

Section 13.05. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed to constitute one and the same instrument.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

METROCORP BANCSHARES, INC.

--------------------------------------

ATTEST:

- -----------------------------

METROBANK, N.A.

--------------------------------------

ATTEST:

- -----------------------------

MC BANCSHARES OF DELAWARE, INC.

--------------------------------------

ATTEST:

- -----------------------------

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<PAGE>

EXHIBIT A

PLAN OF CONSOLIDATION BY AND AMONG
METROBANK, N.A.
NEW METROBANK, N.A.
METROCORP BANCSHARES, INC.

THIS PLAN OF CONSOLIDATION, dated as of July 28, 1998 (the "Plan"), is by
and among MetroBank, N.A., a banking association incorporated and organized
under the laws of the United States of America (the "Bank"), New MetroBank,
N.A., a banking association incorporated and organized under the laws of the
United States of America (the "New Bank"), and MetroCorp Bancshares, Inc., a
Texas corporation (the "Company"). The Bank and the New Bank are hereinafter
referred to collectively as the "Consolidating Banks."

1. DECLARATIONS. The Bank is a banking association duly organized and
existing under the laws of the United States of America having authorized
2,000,000 shares of common stock, $5.00 par value (the "Bank Common Stock"),
1,413,640 of which are issued and 1,382,407 of which are outstanding. There are
no existing options, warrants, calls or commitments of any kind obligating the
Bank to issue any Bank Common Stock. New Bank is a banking association duly
organized and existing under the laws of the United States of America having
authorized 200,000 shares of capital stock, $1.00 par value ("New Bank Stock"),
all of which shares are issued and outstanding and are owned by the Company.
The Company has authorized 20,000,000 shares of Common Stock, $1.00 par value
(the "Common Stock"), 1,000 shares of which are issued and outstanding and
2,000,000 shares of Preferred Stock, $1.00 par value, none of which are issued
and outstanding.

The Bank, the Company and MC Bancshares of Delaware, Inc. (the "Delaware
Company") have entered into an Agreement and Plan of Reorganization (the
"Agreement"), which contemplates, among other things, the consolidation of the
Bank with the New Bank (the "Consolidation") and the conversion of the Bank
Common Stock into Common Stock and other consideration of the Company. The
purpose of this Plan is to set forth certain of the terms and conditions upon
which such transactions shall take place.

2. THE CONSOLIDATION. On the Effective Date (as hereinafter defined),
the New Bank shall be consolidated with the Bank under the charter of the Bank,
which shall survive the Consolidation ("Resulting Bank") and continue to be
governed by the laws of the United States of America. The Consolidation shall
be effected pursuant to the provisions of and shall have the effect provided by
the National Bank Act, as amended (the "Act").

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<PAGE>

3. ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES. On and subsequent to
the Effective Date, the Articles of Association and Bylaws of the Bank shall
continue to be the Articles of Association and Bylaws of the Resulting Bank.
The established offices and facilities of the Bank immediately prior to the
Consolidation shall continue to be the established offices and facilities of the
Resulting Bank.

4. EFFECT OF THE CONSOLIDATION. On the Effective Date, the corporate
existence of the Bank and New Bank shall, as provided in the Act, be
consolidated and continued in the Resulting Bank, and the Resulting Bank shall
be deemed a continuation in entity and identity of each of the Consolidating
Banks. The Resulting Bank shall be subject to all the liabilities, obligations
and duties of each Consolidating Bank, and shall without the necessity of any
conveyance, assignment or transfer become the owner of all of the assets of
every kind and character formerly belonging to the Consolidating Banks. If
either Consolidating Bank shall at the Effective Date be acting as trustee,
guardian, executor, administrator or in any other fiduciary capacity, the
Resulting Bank shall, without the necessity of any judicial action or action by
the creator of such trust, continue such office, trust or fiduciary relationship
and shall perform all of the duties and obligations and exercise all the powers
and authority connected with or incidental to such fiduciary relationship in the
same manner as though the Resulting Bank had been originally named or designated
as such fiduciary. The naming or designating by a testator, or the creator of a
living trust, of either of the Consolidating Banks to act as trustee, guardian,
executor or in any other fiduciary capacity shall be considered the naming or
designating of the Resulting Bank to act in such capacities.

5. LIABILITIES. On the Effective Date, the Resulting Bank shall be
liable for all liabilities of the Bank and New Bank, and all deposits, debts,
liabilities, obligations and contracts of the Bank and New Bank, respectively,
matured or unmatured, whether accrued, absolute, contingent or otherwise,
whether or not reflected or reserved against on balance sheets, books of account
or records of the Bank or New Bank, as the case may be, shall be those of the
Resulting Bank and shall not be released or impaired by the Consolidation; and
all rights of creditors and other obligees and all liens on property of either
New Bank or the Bank shall be preserved unimpaired subsequent to the
Consolidation.

6. CONVERSION OF SHARES. The manner and basis of converting the shares
of the Bank Common Stock, and the New Bank Stock into shares of capital stock of
the Resulting Bank and into shares of Common Stock, and other considerations,
respectively, are as follows:

6.1. Except as otherwise set forth below, upon and by reason of the
Consolidation becoming effective, each share of the Bank Common Stock on the
Effective Date, and all rights in respect of such shares of Bank Common Stock,
without any action on the part of the holder

-17-
<PAGE>

thereof, shall be converted into and exchanged for four (4) shares of Common
Stock.

6.2. Upon and by reason of the Consolidation becoming effective, each
share of New Bank Stock will be canceled and converted into shares of Bank
Common Stock so that immediately after the Consolidation, the Company will own
all of the issued and outstanding shares of Bank Common Stock.

6.3. If the relevant securities laws of any state in which a
stockholder ("Ineligible Stockholder") resides do not provide an exemption from
registration under such securities laws for the issuance of the Common Stock in
connection with the Consolidation and the expense to register the Common Stock
is unjustified as determined by the Board of Directors of the Company in its
sole discretion, each share of Bank Common Stock which is owned beneficially on
the date of the consummation of the Consolidation ("Effective Date") by each
Ineligible Stockholder on the Effective Date, without any action on the part of
the holder thereof, shall be converted into and exchanged for cash in an amount
equal to $21.54.

6.4. After the Effective Date, each holder of an outstanding
certificate or certificates which prior thereto represented shares of Bank
Common Stock shall surrender the same and such holder shall be entitled, upon
such surrender, to receive in exchange therefor a certificate or certificates
representing the number of shares of Common Stock or cash into and for which the
shares of Bank Common Stock so surrendered shall have been converted and
exchanged as provided above. Until a certificate which represented shares of
Bank Common Stock prior to the Effective Date and which is held by a person
entitled to receive Common Stock or cash is surrendered, such certificate shall
evidence for all purposes the ownership of the shares of Common Stock or cash
into which the shares of Bank Common Stock represented by such certificate prior
to the Effective Date have been converted as provided above.

7. INSURANCE. At the Effective Date, the Resulting Bank will continue
all insurance policies maintained by the Bank and New Bank and which are in
effect immediately prior to the effective date of the Consolidation, including
all group and employee benefit insurance policies.

8. DIRECTORS AND OFFICERS. Subject to qualification of directors as
required by applicable statutes, the Board of Directors and the officers of the
Resulting Bank at the Effective Date shall consist of all the persons who are
directors or officers of the Bank immediately prior to the Effective Date.

9. RATIFICATION BY STOCKHOLDERS. This Plan shall be submitted to the
stockholders of the Bank and New Bank for ratification and confirmation at
meetings to be called and held in accordance with applicable provisions of law
and the respective Articles of Association and

-18-
<PAGE>

Bylaws of the Bank and New Bank. The Bank and New Bank shall proceed
expeditiously and cooperate fully in the procurement of any other consents
and approvals and the taking of any other action, and the satisfaction of all
other requirements prescribed by law or otherwise, necessary for consummation
of the Consolidation on the terms herein provided, including, without
limitation, the preparation and submission of all necessary filings and
certificates with the Board of Governors of the Federal Reserve System
("Federal Reserve") and Office of the Comptroller of the Currency (the "OCC")
for approval as required by law.

10. TERMINATION. If:

(a) Any of the events set forth in Section 8.03 of the Agreement
occurs;

(b) Any condition precedent contained in Articles IX, X, XI or
XII of the Agreement has not been fulfilled or waived on or before the
Closing Date set forth in the Agreement; or

(c) For any reason the consummation of the Consolidation is
inadvisable in the joint and mutual opinions of the Boards of Directors of
the Bank, New Bank and the Company;

then this Plan may be terminated at any time before the Effective Date by
written notice by one or more of the Bank, New Bank and the Company to the
others, authorized or approved by resolutions adopted by the Board of Directors
of each party giving such notice. Upon termination by written notice as
provided in this Section 10, this Plan shall be void and of no further force or
effect.

11. NOTICES. Any notice given hereunder shall be in writing and shall be
mailed by first class mail, postage prepaid, to the parties at the following
addresses:

To Bank:

MetroBank, N.A.
9600 Bellaire, Suite 101
Houston, Texas 77036

Attention: Don J. Wang

-19-
<PAGE>

To New Bank:

New MetroBank, N.A.
9600 Bellaire, Suite 101
Houston, Texas 77036

Attention: Don J. Wang

To Company:

MetroCorp Bancshares, Inc.
9600 Bellaire, Suite 101
Houston, Texas 77036

Attention: Don J. Wang

12. EFFECTIVE DATE. Subject to the terms and upon satisfaction of all
requirements of law and the conditions specified in this Plan including, among
other conditions, receipt of the approval of the OCC and the Federal Reserve,
the Consolidation shall become effective, and the Effective Date of the
Consolidation shall occur, at the date and time specified in the certificate
approving the Consolidation to be issued by the OCC (the "Effective Date").

IN WITNESS WHEREOF, the Bank, New Bank, and the Company have caused this
Plan to be executed in counterparts by their duly authorized officers as of the
date first above written, and directors constituting a majority of the Board of
Directors of the Bank and New Bank have hereunto subscribed their names.

METROBANK, N.A.

-----------------------------------

ATTEST:

- -----------------------------

-20-
<PAGE>

NEW METROBANK, N.A.

------------------------------------

ATTEST:

- -----------------------------

METROCORP BANCSHARES, INC.

------------------------------------

ATTEST:

- -----------------------------

-21-
<PAGE>

STATE OF TEXAS

COUNTY OF HARRIS

On this ____ day of __________, 1998, before me, a notary public for this
state and county, personally came _________________, as President of MetroBank,
N.A., New MetroBank, N.A. and MetroCorp Bancshares, Inc., ___________________,
as __________________ of MetroBank, N.A. and New MetroBank, N.A. and
_________________, as __________________ of MetroCorp Bancshares, Inc. and each
in his capacity acknowledged this instrument to be the act and deed of the
association and the seal affixed to it to be its seal.

WITNESS my official seal and signature this day and year.

-----------------------------------------
Notary Public, Harris County
[Seal of Notary]
My commission expires
-------------------

-22-

<PAGE>

DIRECTOR STOCK OPTION AGREEMENT

THIS STOCK OPTION has been granted effective as of July 24, 1998, by
METROBANK, N.A., a national banking association (the "Bank"), to
_____________________ ("Optionee").

RECITALS

Effective July 24, 1998, the Board of Directors of the Bank granted this
non-qualified stock option as a reward for the Optionee's hard work since the
formation of the Bank to make the Bank a success.

OPTION

The Bank hereby grants to Optionee the right to purchase shares of
Common Stock, $5.00 par value ("Common Stock"), from the Bank upon the
following terms and conditions:

SECTION 1. NUMBER OF SHARES. The Optionee may purchase a total of
5,000 shares of Common Stock under this option, which may be purchased at any
time, or from time to time, in whole or in part, until the option term
expires. The number of shares granted shall be subject to Recapitalization
Adjustments under the provisions of Section 3. This option is intended to be
a non-qualified stock option.

SECTION 2. OPTION PRICE. The Option Price shall be $44.00 per share,
which, in the good faith belief of the Board of Directors on the date hereof,
is 100% of the fair market value of a share of the Bank's Common Stock on the
date of grant. Such Option Price is subject to Recapitalization Adjustments
under the provisions of Section 3.

SECTION 3. ADJUSTMENTS TO NUMBER OF SHARES AND OPTION PRICE. In the
event of any subdivision or combination of shares of Common Stock, or in the
event of a stock dividend, capital reorganization, recapitalization,
consolidation or merger with the Bank as the surviving corporation, such
Recapitalization Adjustment as the Board of Directors shall deem to be
appropriate shall be made to the number of shares subject to purchase under
this Stock Option or to the Option Price with respect to such shares or to
both. In particular, the Board of Directors has proposed, subject to
shareholder approval, (i) the formation of a new bank holding company to be
named "MetroCorp Bancshares, Inc." (the "Holding Company") and (ii) the
exchange of all outstanding shares of Common Stock of the Bank on a
four-for-one basis for shares of Common Stock of the Holding Company. If the
Holding Company is successfully formed on the four-for-one exchange basis
described above, this Stock Option shall be automatically converted into an
option to purchase 20,000 shares of Common Stock of the Holding Company at an
Option Price of $11.00 per share, and all references herein to the Bank shall
be deemed to be references to the Holding Company.

<PAGE>

SECTION 4. OPTION TERM. Subject to the provisions of Sections 1 and 6
herein, the term of this Stock Option shall be for the five (5) year period
commencing on the date hereof and ending on July, 24, 2003.

SECTION 5. TERMINATION OF DIRECTORSHIP. All rights of a director in
this option, to the extent that it has not been exercised, shall terminate
upon the termination of his or her services as a director for any reason
other than the death of the director or retirement in accordance with the
Bank policy or retirement because of total and permanent disability. In the
case of such a retirement, a director's option shall terminate one (1) year
after the date of retirement or, if earlier, on the original expiration date
of the option. Notwithstanding the foregoing, any option granted to a
director under the Plan and outstanding on the date of the director's death
may be exercised by the personal representative of the director's estate or
by the person or persons to whom the option is transferred pursuant to the
director's will or in accordance with the laws of descent and distribution at
any time prior to the earlier of the one (1) year after the date of the
director's death or the original expiration date of such option; upon the
earlier of such events the option shall terminate.

SECTION 6. LIMITATIONS ON RIGHT TO EXERCISE STOCK OPTION. The right to
exercise this Stock Option during the Option Exercise Period shall be subject
to the following limitations:

(a) During the lifetime of the Optionee, no one other than the
Optionee may exercise this Stock Option.

(b) After the death of the Optionee, this Stock Option may be
exercised only by a successor Optionee who has become entitled hereunder by
will or the laws of descent and distribution, and who satisfies the Bank of
his or her entitlement under such will or laws.

SECTION 7. PAYMENT FOR STOCK. The Optionee may pay the Option Price in
cash or its equivalent or by exchanging shares of Common Stock of the Bank
previously acquired by Optionee.

SECTION 8. MANNER OF EXERCISE OF STOCK OPTION. Any exercise of this
Stock Option must be given by notice in writing to the President of the Bank.
Such notice must specify the number of shares of Common Stock covered by
the exercise and must be accompanied by payment in full consideration for the
shares as to which they are exercised in one or a combination of the
following alternative forms:

(a) cash (including check, bank draft or money order);

(b) shares of Common Stock previously acquired and held for at least
six (6) months and standing in the name of the director equal in value on
the date of exercise to the Option Price of the shares being exercised
hereunder; or

-2-
<PAGE>

(c) by delivering a properly executed exercise note together with
irrevocable instructions to a broker to deliver promptly to the Bank the
total Option Price in cash.

If the value of the shares tendered is less than the Option Price, any
balance shall be paid in cash or its equivalent. If the value of a
certificate for shares tendered is in excess of the Option Price, the excess
representing any fraction of a share value will be refunded to Optionee in
cash by the Bank, and any excess representing whole share values will be
refunded to Optionee by the issuance of a new Stock certificate representing
such whole shares. If the Optionee desires that the shares of Common Stock
be registered in his name and that of another as joint tenants with right of
survivorship, he should so state in the notice. In no case may fewer than
one hundred (100) of such shares be purchased at any one time, except to
purchase a residue of fewer than one hundred (100) shares. An option may not
be exercised for a fractional share.

SECTION 9. WITHHOLDING TAXES. Whenever the Bank is required to issue
shares of Common Stock hereunder, the Bank shall have the right to require
the Optionee to remit to the Bank an amount sufficient to satisfy any
Federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. Alternatively,
at the Bank's discretion, the Bank may issue, transfer or vest only such
number of shares of Common Stock net of the number of shares sufficient to
satisfy the withholding tax requirements. For withholding tax purposes, the
shares of Common Stock shall be valued on the date the withholding obligation
is incurred.

SECTION 10. COMPLIANCE WITH SECURITIES LAWS. The Bank shall not be
required to sell or issue any shares of Common Stock under the Stock Option
evidenced hereby if the issuance of such shares shall constitute or result in
a violation by the Optionee or the Bank of any federal or state securities or
other laws. The Bank may, but shall in no event be obligated to, register
any shares covered hereby pursuant to applicable securities laws of any
country or political subdivision thereof. In the event the shares issuable
on exercise of the Stock Option evidenced hereby are not so registered, the
Bank may imprint on the certificate representing such shares any legend that
counsel for the Bank considers necessary or advisable to comply with
applicable law.

SECTION 11. NON-TRANSFER OF STOCK OPTION. This Stock option is not
transferable otherwise than by will or the laws of descent and distribution.

SECTION 12. OWNERSHIP OF BANK STOCK AND DELIVERY OF CERTIFICATE. Upon
exercise of this Stock Option and payment therefore in accordance with
Section 8, the Bank shall take prompt action to have the shares of Common
Stock covered by the particular exercise of this Stock Option issued or
transferred to the Optionee or to the Optionee and another as joint tenants
with right of survivorship or to a successor Optionee and such Optionee or
person shall own such shares of Common Stock covered by the particular
exercise of this Stock Option from and after the date of their issuance or
transfer on the books of the Bank, but such person or persons shall have no
rights as a stockholder of the Bank until such shares of Common Stock are so
issued or transferred. The Bank agrees, within a reasonable time thereafter,
to deliver to the Optionee or successor Optionee

-3-
<PAGE>

a certificate or certificates evidencing ownership of the shares of Common
Stock covered by the particular exercise of this Stock Option.

SECTION 13. NOTICES AND PAYMENTS. Any notice to be given by the
Optionee or Successor Optionee hereunder shall be in writing, and any such
notice and payment hereunder shall be deemed to have been duly given or made
only upon receipt thereof by the President of the Bank. Any notice or
communication by the Bank hereunder shall be in writing and shall be deemed
to have been given in the case of the Optionee if mailed or delivered to the
Optionee at his last known address, or to such other address as the Optionee
may specify for the purpose by notice in writing to the Bank.

SECTION 14. WAIVER. The waiver by the Bank of any provision of this
Stock Option at any time or for any purpose shall not operate as or be
construed to a waiver of the same or any other provision of this Stock Option
at any subsequent time or for any other purpose.

SECTION 15. SECTION HEADINGS. The section headings in this Stock
Option are for convenience of reference only and shall not be deemed a part
of, or germane to, the interpretation or construction of this Stock Option.

SECTION 16. GOVERNING LAW. The validity and construction of this Stock
Option shall be governed by the laws of the State of Texas.

IN WITNESS WHEREOF, the Bank has caused this Stock Option to be executed
by its duly authorized officer on the date first above written.

METROBANK, N.A.

By:
------------------------------------

Name:
-------------------------------

Title:
------------------------------

-4-

<PAGE>

METROCORP BANCSHARES, INC.

NON-EMPLOYEE DIRECTOR STOCK BONUS PLAN

I. PLAN PURPOSE

SECTION 1.1. MetroCorp Bancshares, Inc. (the "Company") hereby
establishes the Non-Employee Director Stock Bonus Plan (the "Plan"), which
provides the Non-Employee Directors with an annual bonus plan payable in
shares of Common Stock of the Company, but only if certain goals for return
on equity are achieved for that year. The purpose of this Plan is to provide
incentives to the Non-Employee Directors of the Company to assist the Company
improve its financial performance each year.

II. DEFINITIONS

SECTION 2.1. "Board" means the Board of Directors of the Company, and
any persons appointed to serve as advisory directors of the Company.

SECTION 2.2. "Common Stock" means the Company's Common Stock, $1.00
par value per share.

SECTION 2.3. "Fair Market Value" means, as of any specified date, the
closing price of a share of Common Stock of the Company, as reported by the
NASDAQ National Market System or any securities exchange on which the shares
of Common Stock shall then be traded.

SECTION 2.4. "Non-Employee Director" means a member of the Board who
is not an employee of the Company.

SECTION 2.5 "Return on Equity" means for any calendar year the net
income of the Company as reflected on the Company's audited Statement of
Income for such year divided by the average amount of shareholder's equity
outstanding during such year. Return on Equity shall be expressed as a
percentage to the second decimal point.

III. SHARES AUTHORIZED FOR ISSUANCE

SECTION 3.1. A maximum of 60,000 shares of Common Stock may be issued
under this Plan. The Common Stock issued under this Plan shall be authorized
and unissued or treasury shares of Common Stock of the Company. In the event
of any change in the outstanding Common Stock of the Company by reason of any
stock split, stock dividend, merger, consolidation, reorganization, or other
similar change in capitalization, the number or kind of shares that may be
issued under the Plan shall be automatically adjusted so that the
proportionate interest of the shares issuable under this Plan is maintained
as before the occurrence of such event.

<PAGE>

IV. ANNUAL BONUS; PROCEDURES

SECTION 4.1. For each of the five calendar years starting with 1998
and ending with 2002, up to 12,000 shares of Common Stock of the Company
shall be issuable to the Non-Employee Directors of the Company, subject to
the following terms and conditions:

(i) A Non-Employee Director shall be eligible to participate in
the Plan during a calendar year only if the Non-Employee Director has
served in such position at least six months of such calendar year and is
still serving in such position on December 31 of such calendar year.

(ii) Return on Equity for any calendar year shall be determined by
the independent public accounting firm of the Company after such firm has
completed its audit of the Company's financial statements for such calendar
year. The determination of such firm for any calendar year shall be final,
binding and conclusive for all purposes.

(iii) For each calendar year, the number of such 12,000 shares of
Common Stock issuable to the eligible Non-Employee Directors as a group
shall be determined by the extent to which the Company shall have achieved
a Return on Equity in excess of 13%, as set forth below:

<TABLE>
<CAPTION>
Return on Equity Shares
for Calendar Year Earned
----------------- ------
<S> <C>
Below 13% 0
13% or more 12,000
</TABLE>

(iv) The total shares issuable to the eligible Non-Employee
Directors as a group for any calendar year (as determined pursuant to
subparagraph 4.1(iii) above) shall be divided among such Non-Employee
Directors so that each Non-Employee Director who served on one or more
Board Committees during such calendar year will receive twice as many
shares as a Non-Employee Director who did not serve on one or more Board
Committees during such calendar year.

SECTION 4.2. Any shares of Common Stock issued to a Non-Employee
Director pursuant to this Plan for any calendar year shall be deemed to be
fully paid and non-assessable shares of Common Stock on the date of issuance.
Only whole numbers of shares of Common Stock shall be issued; fractional
shares shall be rounded up to the nearest whole share.

SECTION 4.3. The Director Compensation Committee (the "Committee") of
the Board of Directors shall be responsible for the administration of the
Plan; PROVIDED, HOWEVER, that all members of such Committee shall be composed
of members of the Board who are employees of the Company. The Committee, by
majority action of its members, is authorized to interpret the Plan,
prescribe,

-2-
<PAGE>

amend, and rescind rules and regulations relating to the Plan, provide for
conditions and assurances deemed necessary or advisable to protect the
interests of the Company, and make all other determinations necessary or
advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. The determinations,
interpretations, and other actions of the Committee pursuant to the
provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.

V. EFFECTIVE DATE AND TERM OF PLAN

SECTION 5.1. The Plan shall be submitted to the stockholders of the
Company for their approval at the 1998 Annual Meeting of Stockholders and
will become effective only upon both (i) stockholder approval and (ii) the
completion of an initial public offering of the Company.

SECTION 5.2. This Plan shall be effective for the five calendar years
beginning in 1998 and ending in 2002.

VI. AMENDMENT AND TERMINATION

SECTION 6.1. The Board of Directors of the Company may at any time
terminate, amend or modify the Plan; PROVIDED, HOWEVER, that no amendment or
modification may become effective without approval by the shareholders of the
Company if shareholder approval is required to enable the Plan to satisfy any
applicable statutory or regulatory requirements or if the Board, on advice of
counsel, determines that shareholder approval is otherwise necessary or
advisable.

VII. TRANSFER RESTRICTIONS; INTENTION TO COMPLY WITH APPLICABLE SECURITIES
LAWS

SECTION 7.1. Any shares of Common Stock issued pursuant to the Plan
may not be resold for a period of six months following the issuance of such
shares of Common Stock.

SECTION 7.2. The provisions of this Plan are intended, and shall be
interpreted, to permit the issuance of shares of Common Stock made hereby to
comply with all applicable conditions of Rule 16b-3 or its successors under
the Securities Exchange Act of 1934, as amended. To the extent any
provisions of the Plan or actions by the Committee fail to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.

SECTION 7.3. All transactions pursuant to the terms of the Plan shall
only be effective at such time as counsel to the Company shall have
determined that such transaction will not violate federal or state securities
or other laws. The Committee may, in its sole discretion, defer the
effectiveness of such transaction to pursue whatever actions may be required
to ensure compliance with such federal or state securities or other laws.

SECTION 7.4. All certificates for shares of Common Stock delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Company may deem advisable

-3-
<PAGE>

under the rules, regulations and other requirements of the Company, any stock
exchange upon which the Common Stock is then listed and any applicable
Federal or state securities laws, and the Company may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.

VIII. WITHHOLDING TAXES

SECTION 8.1. Whenever the Company issues shares of Common Stock
under the Plan, the Company shall have the right to require the Non-Employee
Director to remit to the Company an amount sufficient to satisfy any Federal,
state and/or local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Alternatively, at the Company's
discretion, the Company may issue only such number of shares of Common Stock
net of the number of shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall
be valued on the date the withholding obligation is incurred.

-4-

<PAGE>

METROBANK BANCSHARES, INC.

1998 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSES.

The MetroCorp Bancshares, Inc. 1998 Employee Stock Purchase Plan is
intended to provide an incentive for employees of MetroCorp Bancshares, Inc.
(the "Company") and its subsidiaries to acquire a proprietary interest (or
increase an existing proprietary interest) in the Company through the purchase
of shares of Common Stock of the Company. The Plan is intended to qualify as an
"Employee Stock Purchase Plan" under Sections 421 and 423 of the Internal
Revenue Code of 1986 (the "Code"). The provisions of the Plan will be
administered, construed and interpreted in a manner consistent with the
requirements of such sections of the Code.

2. DEFINITIONS.

(a) "BASE PAY" means regular straight-time earnings excluding
payments for overtime, incentive compensation, bonuses, and other special
payments.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means the Committee designated by the Board to
administer the Plan, as set forth in Section 13 below.

(e) "COMMON STOCK" means the common stock, $1.00 par value per
share, of the Company.

(f) "COMPANY" means MetroCorp Bancshares, Inc., and each Subsidiary
(whether or not it is now a Subsidiary) unless the context otherwise
requires.

(g) "EMPLOYEE" means any person who is employed by the Company or a
Subsidiary for more than 20 hours per week.

(h) "SUBSIDIARY" means any corporation in which the Company owns,
directly or indirectly, 50% or more of the combined voting power of all
classes of stock and which has been designated by the Committee as a
corporation whose employees may participate in the Plan. The only
Subsidiary currently participating in the Plan is MetroBank, N.A.

<PAGE>

3. ELIGIBILITY.

(c) INITIAL ELIGIBILITY. Participation in the Plan is voluntary.
Each Employee who has been employed by the Company for three months on any
Offering Commencement Date will be eligible to participate in the Plan.

(d) RESTRICTIONS ON PARTICIPATION. Any provision of the Plan to the
contrary notwithstanding, no Employee will be granted an option under the
Plan:

(i) if, immediately after the grant, the Employee would own
stock, and/or hold outstanding options to purchase stock, possessing
5% or more of the total combined voting power or value of all classes
of stock of the Company or of any Subsidiary; or

(ii) which permits such Employee's rights to purchase stock
under all employee stock purchase plans (within the meaning of
Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds $25,000 of the fair market value of
the stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.

4. SHARES SUBJECT TO THE PLAN.

The total number of shares of Common Stock that may be issued upon the
exercise of options granted under the Plan will not exceed 200,000 shares
(subject to adjustment as provided in Section 17 hereof), and such shares may be
unissued shares, reacquired shares, shares bought on the market, or any
combination of the foregoing. If any option which has been granted expires or
terminates for any reason without having been exercised in full, the unpurchased
shares will again become available for purposes of the Plan.

5. ANNUAL OFFERINGS.

The Plan will be implemented by ten annual offerings (the "Offerings") of
the Company's Common Stock, which Offerings shall begin on any date designated
by the Board in 1998 and on May 1 in each of the years 1999 through 2007 (the
"Offering Commencement Date") and shall terminate for each Offering 27 months
after the Offering Commencement Date for such Offering (the "Offering
Termination Date"); PROVIDED, HOWEVER, that the Board reserves the right, at its
sole discretion, to decide not to have an Offering during any year. The maximum
number of shares that may be offered during any annual Offering shall be
determined by the Board, but shall not exceed 20,000 shares, plus any shares
that were not subscribed for in any prior Offerings.

-2-
<PAGE>

6. PARTICIPATION.

(a) COMMENCEMENT OF PARTICIPATION. An eligible Employee may become a
participant by completing a payroll deduction authorization form provided
by the Company and filing it with the Company at such time and in such
manner as the Committee prescribes (but in no event later than 30 days
after the Offering Commencement Date), and such authorization will become
effective on the first day of the next payroll period. Such payroll
deduction authorization form shall set forth the number of shares of Common
Stock that the Employee wishes to purchase.

(b) PERIOD OF PAYROLL DEDUCTIONS. Payroll deductions for a
participant will commence with the first payroll period after such
participant's authorization for a payroll deduction becomes effective and
will end no later than two years after such commencement (but in no event
later than the Offering Termination Date) unless sooner terminated by the
participant as provided in Section 11 hereof.

(c) NO EMPLOYMENT RIGHTS. Nothing in the Plan will confer on a
participant the right to continue in the employment of the Company or will
limit or restrict the right of the Company to terminate the employment of a
participant at any time with or without cause.

(d) NO INTEREST IN STOCK UNTIL PURCHASE. A participant will have no
interest in any Common Stock to be purchased under the Plan or any rights
as a stockholder with respect to such Common Stock until the Common Stock
has been fully paid for and purchased as set forth in Section 9 hereof.

7. GRANTING OF OPTION.

(a) NUMBER OF OPTION SHARES. Subject to the limits of Section 3
above and Section 7(c) below, for each Offering, a participant will be
deemed to have been granted an option to purchase such number of full
shares of Common Stock as are equal to the quotient of (i) 20% of such
Participant's Base Pay on the Offering Commencement Date for such Offering,
divided by (ii) the option price for such Offering, as determined in
Section 7(b) below.

(b) OPTION PRICE. The option price of the Common Stock for each
Offering shall be equal to the closing price of the Common Stock on the
last business day immediately prior to the Offering Commencement Date of
such Offering (or the nearest prior business day on which trading occurred)
on the NASDAQ National Market System or such other exchange or market
trading system upon which the Common Stock shall then be trading.

(c) OVERSUBSCRIPTION OF OFFERING. During any Offering, if
participants in the Plan subscribe for more than the maximum number of
shares of Common Stock for such Offering (as determined in Section 5
hereof), the Committee shall reduce the number of

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<PAGE>

shares subscribed for by the participants to the maximum shares offered
in the Offering. The Committee shall make such reduction in a manner
that it deems to be fair and equitable under the circumstances.

8. PAYROLL DEDUCTIONS.

(a) AMOUNT OF DEDUCTION. The shares of Common Stock that the
participant subscribes for shall be paid for in equal installments over six
months, one year or two years (as selected by the participant) through a
payroll deduction program established by the Committee. At the time a
participant files his payroll deduction authorization form, the participant
will elect to have deductions made from the participant's Base Pay on each
payday in equal amounts over the following six months, one year or two
years (as selected by the participant), but in no event may a participant
subscribe for more than the number of shares that the participant was
granted an option for under Section 7(a).

(b) PARTICIPANT'S ACCOUNT; PREPAYMENT. All payroll deductions made
for a participant will be credited to the participant's account under the
Plan. At any time before a participant has made the final payroll
deduction for such Offering, a participant may make a single prepayment
of the entire balance of his subscription remaining unpaid at the time
of such prepayment.

(c) NO SUBSEQUENT CHANGES IN PAYROLL DEDUCTIONS. A participant may
suspend or discontinue the participant's participation in the Plan as
provided in Section 11 hereof, but no other changes can be made during an
Offering (other than a prepayment under Section 8(b) above), and
specifically, a participant may not alter the amount of his payroll
deduction for that Offering.

9. EXERCISE OF OPTION.

Unless a participant gives written notice to the Company as provided in
Section 11, the participant's option for the purchase of Common Stock with
payroll deductions made during an Offering will be deemed to have been exercised
automatically on the earlier of (i) the date on which the accumulated payroll
deductions in a participant's account equals the full amount of the purchase
price for the number of shares subscribed for by the participant, (ii) the date
of any prepayment in accordance with Section 8(b) hereof, or (iii) the Offering
Termination Date. Fractional shares will not be issued under the Plan. Any
excess cash amounts credited to a participant's account will be returned to the
participant.

10. DELIVERY OF SHARES.

As promptly as practicable after a participant has purchased shares of
Common Stock in accordance with Section 9, the Company shall arrange the
delivery to each participant, as

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<PAGE>

appropriate, including, but not limited to, direct deposit into a book entry
account or brokerage account, the shares purchased upon exercise of his or
her option.

11. WITHDRAWAL FROM PAYROLL DEDUCTION ACCOUNT.

(a) RIGHT TO WITHDRAW. By written notice to the Company, at any time
prior to the exercise of the option for a particular Offering (as described
in Section 9 above) when the purchase price for the shares subscribed for
by the participant for such Offering has been fully paid, a participant may
elect to withdraw all the accumulated payroll deductions credited to his or
her account for such Offering. Such notice will be on a form provided by
the Committee for that purpose. All such amounts will be paid to the
participant promptly after receipt of the participant's notice of
withdrawal, and no further payroll deductions will be made from the
participant's pay thereafter.

(b) EFFECT OF WITHDRAWAL ON SUBSEQUENT PARTICIPATION. A participant
who suspends or discontinues participation in any Offering may not resume
participation in the Plan until the next Offering.

(c) TERMINATION OF EMPLOYMENT. Upon termination of a participant's
employment for any reason other than death, disability or retirement that
entitles the participant to an early or normal retirement benefit under any
defined benefit pension plan of the Company, participation in the Plan will
immediately terminate and the payroll deductions credited to his or her
account will be delivered to the participant, or, in the case of the
participant's death subsequent to the termination of the participant's
employment, to the person or persons entitled thereto under Section 14 as
promptly as practicable.

(d) TERMINATION OF EMPLOYMENT DUE TO DEATH, ETC. Upon termination of
a participant's employment because of death, disability or retirement that
entitles the participant to an early or normal retirement benefit under any
defined benefit pension plan of the Company, the participant or, in the
event of death, the participant's beneficiary (as defined in Section 14)
will have the right to elect, by written notice given to the Company, on a
form provided by the Committee for such purpose, within 60 days after such
termination, either:

(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or

(ii) to exercise the participant's option for the purchase of
the number of full shares of Common Stock which the accumulated
payroll deductions credited to the participant's account at the date
of the participant's termination of employment will purchase at the
applicable option price, with any excess in such account to be
returned to the participant or the participant's beneficiary.

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<PAGE>

In the event that no such written notice of election is duly received by
the Company within such 60-day period after the termination, the
participant or beneficiary will automatically be deemed to have elected to
withdraw the payroll deductions credited to the participant's account at
the date of the participant's death and the same will be paid promptly to
the participant or the participant's beneficiary.

12. NO INTEREST.

No interest will be paid on any money paid into the Plan or credited to the
account of any participant.

13. ADMINISTRATION.

(a) APPOINTMENT OF COMMITTEE; AUTHORITY. The Plan will be
administered by a Committee appointed by the Board, but in the absence of
any such appointment, the Committee shall be the Compensation Committee of
the Board. The Committee shall have the full power, subject to and within
the limits of the express provisions of the Plan, to construe and interpret
the Plan and options granted under it, and to establish, amend and revoke
rules and regulations for its administration. The Committee, in the
exercise of this power, will generally determine all questions of policy
and expediency that may arise, may correct any defect, or rectify any
omission or reconcile any inconsistency in the Plan or in any instrument
associated with the Plan in a manner and to the extent it will deem
necessary or expedient to make the Plan fully effective. The Committee may
employ such other persons to assist it in the administration of the Plan,
including, but not limited to, a brokerage firm, bank or other financial
institution to assist in the purchase of shares, delivery of reports or
other administrative aspects of the Plan.

(b) RESTRICTIONS ON EXERCISE. The Committee may, in its discretion,
require as conditions to the exercise of any option (i) that the shares of
Common Stock reserved for issuance upon the exercise of the option have
been duly listed, upon official notice of issuance, upon an exchange or the
NASDAQ National Market System, (ii) that a Registration Statement under the
Securities Act of 1933, as amended, with respect to said shares will be
effective, and (iii) that all material information respecting the business
and financial conditions of the Company has been disclosed to the public.

(c) TAX WITHHOLDING REQUIREMENTS. The Company may make such
provisions as it deems appropriate for withholding by the Company pursuant
to all applicable tax laws of such amounts as the Company determines it is
required to withhold in connection with the purchase or sale by a
participant of any Common Stock acquired pursuant to the Plan. The Company
may require a participant to satisfy any relevant tax requirements before
authorizing any issuance of Common Stock to such participant.

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<PAGE>

14. DESIGNATION OF BENEFICIARY.

A participant may file a written designation of a beneficiary who is to
receive any Common Stock and/or cash credited to the participant's account under
the Plan at the participant's death. Such designation of beneficiary may be
changed by the participant at any time by written notice on a form supplied by
the Committee. Upon the death of a participant and upon receipt by the Company
of proof of the identity and existence at the participant's death of a
beneficiary validly designated by the participant under the Plan, the Committee
will cause such Common Stock and/or cash to be delivered to such beneficiary.
In the event of a death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Committee will cause such Common Stock and/or cash to
be delivered to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Committee), the Committee in its discretion, may cause such Common Stock
and/or cash to be delivered to the spouse or to any one or more dependents of
the participant as the Committee may designate. No beneficiary will, prior to
the death of the participant by whom he has been designated, acquire any
interest in the Common Stock or cash credit to the participant under the Plan.

15. TRANSFERABILITY.

No amounts, whether cash or Common Stock, credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Common Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the participant otherwise than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge, or
other disposition will be without effect, except that the Committee may treat
such act as an election to withdraw funds in accordance with Section 11.

16. USE OF FUNDS.

All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose and the Company will not be
obligated to segregate such payroll deductions.

17. EFFECT OF CHANGES OF COMMON STOCK.

The Board may make or provide for such adjustments in the maximum number of
shares specified in Section 4 and the price at which shares of Common Stock are
to be purchased under the Plan as the Board in its sole discretion, exercised in
good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of participants that otherwise would result from any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities or any other corporate transaction or event having an
effect similar to any of the foregoing.

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<PAGE>

18. REPORTS.

Annually, the Company shall provide or cause to be provided to each
participant a report of the participant's contributions to the Plan.

19. EQUAL RIGHTS AND PRIVILEGES.

All eligible Employees shall have equal rights and privileges with respect
to the Plan so that the Plan qualifies as an "employee stock purchase plan"
within the meaning of Section 423 or any successor provision of the Code and
related regulations. Any provisions of the Plan which is inconsistent with
Section 423 or any successor provision of the Code shall without further act or
amendment by the Company be reformed to comply with the requirements of Section
423. This Section 19 shall take precedence over all other provisions in the
Plan.

20. AMENDMENT OR TERMINATION.

The Board may at any time terminate or amend the Plan in any respect, and
if no earlier action is taken, the Plan will terminate as of July 1, 2007;
PROVIDED, HOWEVER, that any Offerings that have commenced prior to such date
shall continue in accordance with the terms of such Offerings. Except as
provided in Section 17 hereof, no termination or amendment will affect or change
options previously granted to any participant, nor may any amendment be made
that will cause rights issued under the Plan to fail to meet the requirements
for employee stock purchase plans as defined in Section 423 of the Code or any
successor thereto, including, without limitation, shareholder approval if
required.

21. NOTICES.

All notices or other communications by a participant to the Committee or
the Company under or in connection with the Plan will be in writing on a form
provided by the Committee and be deemed to have been duly given when received by
the Human Resources Department of the Company.

22. APPROVAL OF STOCKHOLDERS.

The Plan has been adopted by the Board, but is subject to (i) the approval
of the stockholders of the Company at the 1998 annual meeting and (ii) the
completion of an initial public offering.

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<PAGE>

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METROCORP BANCSHARES, INC.

1998 STOCK INCENTIVE PLAN

_______________, 1998

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<PAGE>

TABLE OF CONTENTS

Page
----
<S> <C>
ARTICLE I. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Administration . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Eligibility for Participation. . . . . . . . . . . . . . . . . . 2
Section 1.4. Types of Awards Under Plan . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Aggregate Limitation on Awards . . . . . . . . . . . . . . . . . 2
Section 1.6. Effective Date and Term of Plan. . . . . . . . . . . . . . . . . 3

ARTICLE II. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1. Award of Stock Options . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2. Stock Option Agreements. . . . . . . . . . . . . . . . . . . . . 3
Section 2.3. Stock Option Price . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4. Term and Exercise. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5. Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6. Restrictions on Certain Shares . . . . . . . . . . . . . . . . . 4
Section 2.7. Death, Retirement and Termination of Employment of Optionee. . . 4

ARTICLE III. INCENTIVE STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Award of Incentive Stock Options . . . . . . . . . . . . . . . . 5
Section 3.2. Incentive Stock Option Agreements. . . . . . . . . . . . . . . . 5
Section 3.3. Incentive Stock Option Price . . . . . . . . . . . . . . . . . . 5
Section 3.4. Term and Exercise. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. Maximum Amount of Incentive Stock Option Grant . . . . . . . . . 5
Section 3.6. Death of Optionee. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.7. Retirement or Disability . . . . . . . . . . . . . . . . . . . . 6
Section 3.8. Termination of Employment for Other Than Cause. . . . . . . . . 6
Section 3.9. Termination for Cause or Other Reasons . . . . . . . . . . . . . 6
Section 3.10. Applicability of Stock Options Sections . . . . . . . . . . . . 6

ARTICLE IV. PERFORMANCE SHARE AWARDS . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.1. Awards Granted by Committee. . . . . . . . . . . . . . . . . . . 6
Section 4.2. Amount of Award. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3. Communication of Award.. . . . . . . . . . . . . . . . . . . . . 6
Section 4.4. Amount of Award Payable. . . . . . . . . . . . . . . . . . . . . 7
Section 4.5. Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6. Payments of Awards.. . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.7. Termination of Employment. . . . . . . . . . . . . . . . . . . . 7
Section 4.8. Transfer Restriction . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE V. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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<PAGE>

Section 5.1. General Restriction. . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.2. Non-Assignability. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.3. Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.4. Right to Terminate Employment. . . . . . . . . . . . . . . . . . 8
Section 5.5. Non-Uniform Determinations . . . . . . . . . . . . . . . . . . . 8
Section 5.6. Rights as a Stockholder. . . . . . . . . . . . . . . . . . . . . 8
Section 5.7. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.8. Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.9. Newly Eligible Employees . . . . . . . . . . . . . . . . . . . . 9
Section 5.10. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.11. Changes in the Company's Capital Structure. . . . . . . . . . . 9
Section 5.12. Amendment of the Plan . . . . . . . . . . . . . . . . . . . . . 11
Section 5.13. Rights Under the Plan . . . . . . . . . . . . . . . . . . . . . 11
Section 5.14. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.15. Intention to Comply With Applicable Securities Laws. . . . . . . 11

</TABLE>

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<PAGE>

METROCORP BANCSHARES, INC.

1998 STOCK INCENTIVE PLAN

ARTICLE I. GENERAL

SECTION 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the officers and other key
employees of METROCORP BANCSHARES, INC. and its subsidiaries and affiliates
(collectively referred to as the "Company") closely with the stockholders to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide officers and other key employees with a proprietary
ownership interest in the Company commensurate with Company performance, as
reflected in increased stockholder value; (3) maintain competitive compensation
levels thereby attracting and retaining highly competent and talented officers
and employees; and (4) provide an incentive to the officers and other key
employees for continuous employment with the Company. Certain capitalized terms
are defined in Section 5.7.

SECTION 1.2. ADMINISTRATION.

(a) The Plan shall be administered by the Compensation Committee of
the Board of Directors of the Company (the "Committee"), as constituted
from time to time, each member of which shall be a Non-Employee Director,
as such term is defined in Rule 16b-3 issued by the Securities and Exchange
Commission.

(b) The Committee shall have the authority, in its sole discretion
and from time to time to:

(i) designate the officers and key employees of the Company
eligible to participate in the Plan;

(ii) grant Awards provided in the Plan in such form and amount as
the Committee shall determine;

(iii) impose such limitations, restrictions and conditions, not
inconsistent with this Plan, upon any such Award as the Committee
shall deem appropriate;

(iv) prescribe the form and terms of instruments evidencing such
Awards; and

(v) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan; adopt, amend and
rescind rules and regulations relating to the Plan; and make all
other determinations and take all other action necessary or advisable
for the implementation and administration of the Plan.

(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be final,
conclusive and binding upon all persons, including the Company, any
participant, any stockholder of the Company and any employee. A majority
of

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<PAGE>

the members of the Committee may determine its actions and fix the time and
place of its meetings. No member of the Committee shall be liable for any
action taken or decision made relating to the Plan or any Award thereunder.

SECTION 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan
shall be selected by the Committee from the officers, employees and consultants
of the Company or its Subsidiaries who, in the opinion of the Committee, have
the capacity to contribute to the successful performance of the Company or a
Subsidiary. For the purposes of this Plan, the term "Subsidiary" means any
corporation or other entity of which at least 50% of the voting securities are
owned by the Company directly or through one or more other corporations, each of
which is also a Subsidiary. With respect to non-corporate entities, Subsidiary
shall mean an entity managed or controlled by the Company or any Subsidiary and
with respect to which the Company or any Subsidiary is allocated more than half
of the profits and losses thereof.

SECTION 1.4. TYPES OF AWARDS UNDER PLAN. Awards under the Plan may be in
the form of any one or more of the following:

(i) Stock Options, as described in Article II;

(ii) Incentive Stock Options, as described in Article III; and/or

(iii) Performance Shares, as described in Article IV.

Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Committee, and not inconsistent with this Plan. Award Agreements may
provide such vesting schedules for Stock Options and Incentive Stock Options,
and such other terms, conditions and provisions as are not inconsistent with the
terms of this Plan. Subject to the express provisions of the Plan, and within
the limitations of the Plan, the Committee may modify, extend or renew
outstanding Award Agreements, or accept the surrender of outstanding Awards and
authorize the granting of new Awards in substitution therefor. However, except
as provided in this Plan, no modification of an Award shall impair the rights of
the holder thereof without his or her consent.

SECTION 1.5. AGGREGATE LIMITATION ON AWARDS.

(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). Subject to adjustment by the operation of Section 5.10
hereof, the maximum number of shares of Common Stock which may be issued
pursuant to Awards issued under the Plan shall be 200,000.

(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan at any time:

(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) under the Plan shall be
counted when issued upon exercise of a Stock Option or Incentive Stock
Option; and

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<PAGE>

(ii) only the net shares issued as Performance Shares shall be
counted (shares reacquired by the Company because of failure to
achieve a performance target or failure to become fully vested for any
other reason shall again be available for issuance under the Plan).

(c) Shares tendered by a participant as payment for shares issued
upon exercise of a Stock Option or Incentive Stock Option shall be
available for issuance under the Plan. Any shares of Common Stock subject
to a Stock Option or Incentive Stock Option which for any reason is
terminated unexercised or expires shall again be available for issuance
under the Plan.

SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN.

(a) The Plan shall become effective only after (i) it has been
approved by the stockholders of the Company at the 1998 Annual Meeting of
Stockholders and (ii) the Company shall have completed an initial public
offering.

(b) No Awards shall be made under the Plan after the tenth
anniversary of the effective date of this Plan; provided, however, that the
Plan and all Awards made under the Plan prior to such date shall remain in
effect until such Awards have been satisfied or terminated in accordance
with the Plan and the terms of such Awards.

ARTICLE II. STOCK OPTIONS

SECTION 2.1. AWARD OF STOCK OPTIONS. The Committee may from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any participant in the Plan one or more
options to purchase for cash or shares the number of shares of Common Stock
("Stock Options") allotted by the Committee. The date a Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a participant pursuant to the Plan.

SECTION 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Committee may from time to time determine.

SECTION 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the fair
market value of a share of Common Stock on the date the Stock Option is granted.

SECTION 2.4. TERM AND EXERCISE. A Stock Option shall be exercisable at
such time and under such conditions as set forth in the Award Agreement, but in
no event shall a Stock Option be exercisable later than the tenth anniversary of
the date of grant (the "Option Term"). No Stock Option shall be exercisable
after the expiration of its Option Term.

SECTION 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that,

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<PAGE>

upon such exercise in respect of any shares of Common Stock subject thereto, the
Optionee shall pay to the Company, in full, the option price for such shares.
Such payment may be made by such method or methods and in such form or forms as
the Committee shall determine, including, without limitation, cash, shares of
Common Stock, other Awards or other property, cashless exercise with
simultaneous sale, or any combination thereof, provided that the combined value,
as determined by the Committee, of all cash and cash equivalents and the fair
market value of any such shares of Common Stock, or other property so tendered
to the Company, as of the date of such tender, is at lease equal to the full
amount required to be paid pursuant to the Plan or the applicable Award
Agreement to the Company.

SECTION 2.6. RESTRICTIONS ON CERTAIN SHARES. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock; PROVIDED, HOWEVER, that the
Company shall not be required to issue or deliver any certificates for shares of
Common Stock purchased upon the exercise of a Stock Option prior to the
completion of any registration or other qualification of such shares under any
state or federal law or rulings or regulations of any government regulatory
body, which the Committee shall determine to be necessary or advisable. The
Optionee shall become a stockholder of the Company with respect to Common Stock
represented by share certificates so issued and as such shall be fully entitled
to receive dividends, to vote and to exercise all other rights of a stockholder.

SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:

(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) one year after the Optionee's death. The provisions
of this Section shall apply notwithstanding the fact that the Optionee's
employment may have terminated prior to death, but only to the extent of
any rights exercisable on the date of death.

(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may exercise any Stock Options, provided such
option exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) six months (in the case of permanent disability) or
three months (in the case of retirement) after the termination of the
Optionee's employment.

(c) Upon termination of the Optionee's employment by reason other
than death, disability or cause (as each is determined by the Committee),
the Optionee may exercise any Stock Options, provided such option exercise
occurs within both (i) the remaining Option Term of the Stock Option and
(ii) 30 days of the date of termination.

(d) Upon termination of the Optionee's employment for cause (as
determined by the Committee), or for any reason other than as provided in
Subsection (a), (b) and (c) of this Section 2.7, all Stock Options shall
terminate immediately upon the termination of the Optionee's employment.

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<PAGE>

ARTICLE III. INCENTIVE STOCK OPTIONS

SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from
time to time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in the Plan
who is an employee of the Company one or more "incentive stock options"
(intended to qualify as such under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended ("Incentive Stock Options")) to purchase for
cash or shares the number of shares of Common Stock allotted by the Committee.
Each provision of the Plan and each Incentive Stock Option granted thereunder
shall be construed so that each such option shall qualify as an Incentive Stock
Option, and any provision thereof that cannot be so construed shall be
disregarded, unless the participant agrees otherwise. The date an Incentive
Stock Option is granted shall mean the date selected by the Committee as of
which the Committee allots a specific number of shares to a participant pursuant
to the Plan.

SECTION 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.

SECTION 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the
Incentive Stock Option is granted. Notwithstanding the foregoing, Incentive
Stock Options shall not be granted to any owner of 10% or more of the total
voting power of the Company unless the option price is at least 110% of the fair
market value of a share of Common Stock on the date the Incentive Stock Option
is granted.

SECTION 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall be
exercisable at such time and under such conditions as set forth in the Award
Agreement, but in no event shall an Incentive Stock Option be exercisable later
than the tenth anniversary of the date of grant (the "Option Term").
Notwithstanding the foregoing, if the Optionee is the owner of 10% or more of
the total voting power of the Company, such Incentive Stock Option shall not be
exercisable after the expiration of five years from the date of award. No
Incentive Stock Option shall be exercisable after the expiration of its Option
Term.

SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The
aggregate fair market value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during any calendar year (under all plans of
the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000. If the immediate exercisability of
Incentive Stock Options awarded pursuant to this Article III would cause this
$100,000 limitation to be exceeded for an Optionee, such excess Incentive Stock
Options held by such Optionee shall be treated as non-qualified Stock Options to
the extent necessary to comply with the $100,000 limitation by taking all such
Options into account in the order in which they were granted.

SECTION 3.6. DEATH OF OPTIONEE.

(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and one year after the Optionee's death.

-5-
<PAGE>

(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.

SECTION 3.7. RETIREMENT OR DISABILITY. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Committee, upon the termination of
the Optionee's employment by reason of permanent disability or retirement (as
each is determined by the Committee), the Optionee may exercise any Incentive
Stock Options, provided such option exercise occurs within both (i) the
remaining Option Term of the Incentive Stock Option and (ii) one year (in the
case of permanent disability, as defined in the Internal Revenue Code of 1986)
or three months (in the case of retirement) after the date of termination.
Notwithstanding the terms of an Award Agreement, the tax treatment available
pursuant to Section 422 of the Internal Revenue Code of 1986 upon the exercise
of an Incentive Stock Option shall not be available to an Optionee who exercises
any Incentive Stock Options more than (i) one year after the date of termination
of employment due to permanent disability or (ii) three months after the date of
termination of employment due to retirement.

SECTION 3.8. TERMINATION OF EMPLOYMENT FOR OTHER THAN CAUSE. Upon
termination of the Optionee's employment by reason other than as provided in
Sections 3.6 or 3.7, or by reason other than cause (as determined by the
Committee), the Optionee may exercise any Incentive Stock Options, provided such
option exercise occurs within both (i) the remaining Option Term of the
Incentive Stock Option and (ii) 30 days of the date of termination.

SECTION 3.9. TERMINATION FOR CAUSE OR OTHER REASONS. Upon termination of
the Optionee's employment for cause (as determined by the Committee), or for any
other reason other than as provided in Sections 3.6, 3.7 and 3.8, or except as
otherwise determined by the Committee in an Award Agreement, all Incentive Stock
Options shall terminate immediately upon the termination of the Optionee's
employment.

SECTION 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5,
Manner of Payment; and 2.6, Restrictions on Certain Shares, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III as though fully set forth herein.

ARTICLE IV. PERFORMANCE SHARE AWARDS

SECTION 4.1. AWARDS GRANTED BY COMMITTEE. Coincident with or following
designation for participation in the Plan, a participant may be granted
Performance Shares. Certificates representing Performance Shares shall be
issued to the participant effective as of the date of the Award. Holders of
Performance Shares shall have all of the voting, dividend and other rights of
stockholders of the Company, subject to the terms of any Award Agreement.

SECTION 4.2. AMOUNT OF AWARD. The Committee shall establish a maximum
amount of a participant's Award, which amount shall be denominated in shares of
Common Stock.

SECTION 4.3. COMMUNICATION OF AWARD. Written notice of the maximum amount
of a participant's Award and the Performance Cycle determined by the Committee,
if any, shall be given to a participant as soon as practicable after approval of
the Award by the Committee. The grant of Performance Shares

-6-
<PAGE>

shall be evidenced by a written Award Agreement, executed by the Company and the
recipient of Performance Shares, in such form as the Committee may from time to
time determine, providing for the terms of such grant.

SECTION 4.4. AMOUNT OF AWARD PAYABLE. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Committee may place on Performance Shares, the Committee may,
in its discretion, provide that Performance Shares shall vest upon the
satisfaction of performance targets to be achieved during an applicable
"Performance Cycle." Failure to satisfy the performance targets may result, in
the Committee's discretion as set forth in an Award Agreement, in the forfeiture
of the Performance Shares by the participant and the return of such shares to
the Company, or have any other consequence as determined by the Committee.
Performance targets established by the Committee may relate to corporate, group,
unit or individual performance and may be established in terms of cash flow or
cash flow per share, net asset value or net asset value per share, earnings, or
such other measures or standards determined by the Committee. Multiple
performance targets may be used and the components of multiple performance
targets may be given the same or different weighting in determining the amount
of an Award earned, and may relate to absolute performance or relative
performance measured against other groups, units, individuals or entities. The
Committee may also establish that a portion of a full or maximum amount of a
participant's Award will be paid (subject to Section 4.6) for performance which
exceeds the minimum performance target but falls below the maximum performance
target applicable to such Award. Certificates representing Performance Shares
shall bear a legend restricting their transfer and requiring the forfeiture of
the shares to the Company if any performance targets or other conditions to
vesting are not met. The Committee may also require a participant to deliver
certificates representing unvested Performance Shares to the Company in escrow
until the Performance Shares vest.

SECTION 4.5. ADJUSTMENTS. At any time prior to vesting of a Performance
Share, the Committee may adjust previously established performance targets or
other terms and conditions to reflect events such as changes in laws,
regulations, or accounting practice, or mergers, acquisitions, divestitures or
any other event determined by the Committee.

SECTION 4.6. PAYMENTS OF AWARDS. Following the conclusion of each
Performance Cycle, the Committee shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to vesting an Award relating to such Performance Cycle.
To the extent the Committee determines Performance Shares have vested, the
Company shall issue to the participant certificates representing vested shares
free of any legend regarding performance targets or forfeiture in exchange for
such participant's legended certificates.

SECTION 4.7. TERMINATION OF EMPLOYMENT. Unless the Award Agreement
provides for vesting upon death, disability, retirement or termination of
employment, upon any such termination of employment of a participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be cancelled, shall not vest and
shall be returned to the Company.

SECTION 4.8. TRANSFER RESTRICTION. Any Award Agreement providing for the
issuance of Performance Shares to any person who, at the time of grant, is
subject to the restrictions of Section 16(b) of the Exchange Act, shall provide
that such Common Stock cannot be resold for a period of six months following the
grant of such Performance Shares.

-7-
<PAGE>

ARTICLE V. MISCELLANEOUS

SECTION 5.1. GENERAL RESTRICTION. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the grantee of an Award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with, the granting of such Award or the issue or purchase
of shares of Common Stock thereunder, such Award may not be consummated in whole
or in part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee. The provisions of this Plan are intended, and
shall be interpreted, to permit Awards made pursuant hereto to comply with the
exemptions afforded by Rule 16b-3 under the 1934 Act.

SECTION 5.2. NON-ASSIGNABILITY. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.

SECTION 5.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, at the Company's discretion, the Company may issue,
transfer or vest only such number of shares of the Company net of the number of
shares sufficient to satisfy the withholding tax requirements. For withholding
tax purposes, the shares of Common Stock shall be valued on the date the
withholding obligation is incurred.

SECTION 5.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such participant.

SECTION 5.5. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.

SECTION 5.6. RIGHTS AS A STOCKHOLDER. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.

SECTION 5.7. DEFINITIONS. In this Plan, the following definitions shall
apply:

(a) "Award" shall mean a grant of Stock Options, Incentive Stock
Options or Performance Shares under the Plan.

(b) "Fair market value" as of any date and in respect of any share of
Common Stock shall mean the closing price on such date on the NASDAQ
National Market System or such other

-8-
<PAGE>

exchange or market trading system upon which the Common Stock shall then be
trading; PROVIDED, HOWEVER, that if shares of Common Stock shall not have
been traded on any public securities market for more than 10 days
immediately preceding such date or if deemed appropriate by the Committee
for any other reason, the fair market value of shares of Common Stock shall
be as determined by the Committee in such other manner as it may deem
appropriate. In no event shall the fair market value of any share of
Common Stock be less than its par value.

(d) "Option price" means the purchase price per share of Common Stock
deliverable upon the exercise of a Stock Option or Incentive Stock Option.

(e) "Performance Cycle" means the period of time, if any, as
specified by the Committee over which Performance Shares are to be vested.

SECTION 5.8. LEAVES OF ABSENCE. The Committee shall be entitled to make
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.

SECTION 5.9. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to
make such rules, regulations, determinations and Awards as it deems appropriate
in respect of any employee who becomes eligible to participate in the Plan or
any portion thereof after the commencement of an Award or incentive period.

SECTION 5.10. ADJUSTMENTS. In the event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Plan, the number of shares of Common Stock subject
to Options or Performance Shares theretofore granted under the Plan, and any and
all other matters deemed appropriate by the Committee.

SECTION 5.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.

(a) The existence of outstanding Options or Performance Shares shall
not affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.

(b) If, while there are outstanding Options, the Company shall effect
a subdivision or consolidation of shares or other increase or reduction in
the number of shares of the Common Stock outstanding without receiving
compensation therefor in money, services or property, then, subject

-9-
<PAGE>

to the provisions, if any, in the Award Agreement (a) in the event of an
increase in the number of such shares outstanding, the number of shares of
Common Stock then subject to Options hereunder shall be proportionately
increased; and (b) in the event of a decrease in the number of such shares
outstanding the number of shares then available for Option hereunder shall
be proportionately decreased.

(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, (i) each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock, other securities or
consideration to which such holder would have been entitled to receive
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of the Company equal to the number
of shares as to which such Option had been exercisable and (ii) unless
otherwise provided by the Committee, the number of shares of Common Stock,
other securities or consideration to be received with respect to unvested
Performance Shares shall continue to be subject to the Award Agreement,
including any vesting provisions thereof.

(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company is about to sell or
otherwise dispose of substantially all of its assets to another corporation
or other entity while unvested Performance Shares or unexercised Options
remain outstanding, then the Committee may direct that any of the following
shall occur:

(i) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the effective
date of the merger, consolidation or sale of assets, as the case may
be, each holder of an outstanding Option shall be entitled to
receive, upon the exercise of such Option and payment of the option
price, in lieu of shares of Common Stock, such shares of stock or
other securities as the holder of such Option would have been entitled
to receive had such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and the terms of
such Option shall apply as nearly as practicable to the shares of
stock or other securities purchasable upon exercise of the Option
following such merger, consolidation or sale of assets;

(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect
to such Option or Performance Share such that (A) such Option shall
become exercisable prior to the record or effective date of such
merger, consolidation or sale of assets or (B) the vesting of such
Performance Share shall occur upon such merger, consolidation or
sale of assets; and/or

(iii) The Committee may cancel all outstanding Options as of the
effective date of any such merger, consolidation or sale of assets
provided that prior notice of such cancellation shall be given to each
holder of an Option at least 30 days prior to the effective date of
such merger, consolidation or sale of assets, and each holder of an
Option shall have the right to exercise such Option in full during a
period of not less than 30 days prior to the effective date of such
merger, consolidation or sale of assets.

-10-
<PAGE>

(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.

SECTION 5.12. AMENDMENT OF THE PLAN.

(a) The Board may, without further action by the stockholders and
without receiving further consideration from the participants, amend this
Plan or condition or modify Awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.

(b) The Board may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that without stockholder
approval the Board may not (i) increase the maximum number of shares of
Common Stock which may be issued under the Plan (other than increases
pursuant to Section 5.10), or (ii) extend the term of the Plan.
Notwithstanding the above, no amendment to the Plan or any Award shall be
made without shareholder approval if such approval is necessary to comply
with any applicable tax or regulatory requirement, including any
requirements for exemptive relief under Section 16(b) of the 1934 Act, or
any successor provision. The termination or any modification or amendment
of the Plan, except as provided in subsection (a), shall not, without the
consent of a participant, affect a participant's rights under an Award
previously granted to such participant.

SECTION 5.13. RIGHTS UNDER THE PLAN. No officer or employee of the
Company shall have a right to be selected to participate in the Plan nor, having
been so selected, to be selected again to participate in the Plan. No officer,
employee or other person shall have any claim or right to be granted an Award
under the Plan or under any other incentive or similar plan of the Company.
Neither the Plan nor any action taken thereunder shall be construed as giving
and employee of the Company any right to be retained in the employ of the
Company.

SECTION 5.14. APPLICABLE LAW. To the extent that the Plan is not governed
or regulated by applicable federal law, the Plan shall be governed and regulated
under and in accordance with the laws of the State of Texas.

SECTION 5.15. INTENTION TO COMPLY WITH APPLICABLE SECURITIES LAWS.

(a) With respect to persons subject to Section 16 of the Exchange
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the
extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.

(b) All transactions pursuant to terms of the Plan, including, with
limitation, Awards and vesting of shares of Common Stock, shall only be
effective at such time as counsel to the Company shall have determined that
such transaction will not violate federal or state securities or other
laws. The Committee may, in its sole discretion, defer the effectiveness
of such transaction to pursue whatever actions may be required to ensure
compliance with such federal or state securities or other laws.

-11-

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF METROCORP BANCSHARES, INC.

NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------

MC Bancshares of Delaware, Inc. Delaware

MetroBank, National Association United States

Advantage Finance Corporation Texas

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 20, 1998
relating to the financial statements of MetroCorp Bancshares, Inc., which
appears in such Prospectus. We also consent to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Consolidated Financial Data."

/s/ PRICEWATERHOUSECOOPERS LLP____________

PricewaterhouseCoopers LLP

Houston, Texas
August 26, 1998

<PAGE>
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