METROCORP BANCSHARES INC, S-1/A, 1998-12-02

METROCORP BANCSHARES INC
S-1/A, 1998-12-02
STATE COMMERCIAL BANKS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1998.

REGISTRATION NO. 333-62667

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)

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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

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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. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value.................... 1,552,500 $12.50 $19,406,250 $5,725
</TABLE>

(1) Includes 202,500 shares of Common Stock subject to the Underwriter's
over-allotment option.

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

(3) The registration fee has been previously paid.

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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 DECEMBER 2, 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

1,350,000 SHARES

[LOGO]

COMMON STOCK

All 1,350,000 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 $10.50 to $12.50 per share. See "Underwriting." The shares of
Common Stock have been 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.

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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
$450,000.

(3) The Company has granted the Underwriter a 30-day option to purchase up to
202,500 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."

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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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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 OCTOBER 26,
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 September 30, 1998, the Company had total assets of $551.2
million, total loans of $385.0 million, total deposits of $479.6 million and
total shareholders' equity of $35.6 million. Based on total assets as of
September 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, five 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 nine
months ended September 30, 1998, the Company recorded net income of $4.1
million. Return on shareholders' equity for the nine months ended September 30,
1998 was 16.56%. Asset growth has also been strong, with total assets increasing
from $168.9 million at December 31, 1990 to $551.2 million at September 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 served by the Company.

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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 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......................... 1,350,000 shares

Common Stock to be outstanding
after the Offering(1)........... 7,004,560 shares

Use of Proceeds................... Of the $14.0 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 asset growth in the Company's current market
and possible market expansion 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."

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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
NINE MONTHS ENDED
AS OF AND FOR THE
SEPTEMBER 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................................ $ 20,184 $ 16,761 $ 23,017 $ 17,596 $ 13,425 $ 10,488 $ 9,213
Provision for loan losses.......................... 2,520 1,504 3,350 2,118 792 422 557
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for loan
losses......................................... 17,664 15,257 19,667 15,478 12,633 10,066 8,656
Noninterest income................................. 3,873 3,209 4,391 3,446 2,903 3,312 3,681
Noninterest expense................................ 15,489 13,405 18,096 16,102 11,845 9,978 9,520
--------- --------- --------- --------- --------- --------- ---------
Net income before taxes.......................... 6,048 5,061 5,962 2,822 3,691 3,400 2,817
Provision for income taxes......................... 1,948 1,527 1,794 809 1,091 895 798
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 4,100 $ 3,534 $ 4,168 $ 2,013 $ 2,600 $ 2,505 $ 2,019
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

PER SHARE DATA:
Net income-Basic................................... $ 0.73 $ 0.63 $ 0.75 $ 0.38 $ 0.52 $ 0.54 $ 0.45
Net income-Diluted................................. 0.71 0.63 0.74 0.37 0.51 0.53 0.44
Book value......................................... 6.29 5.34 5.49 4.73 4.38 3.99 3.77
Tangible book value................................ 6.29 5.34 5.49 4.73 4.38 3.99 3.77
Cash dividends..................................... -- -- -- -- -- 0.125 --
Weighted average shares outstanding (in thousands):
Basic............................................ 5,625 5,589 5,581 5,364 5,015 4,658 4,534
Diluted.......................................... 5,745 5,635 5,616 5,444 5,104 4,764 4,641

BALANCE SHEET DATA:
Total assets....................................... $ 551,189 $ 493,954 $ 505,051 $ 426,987 $ 322,799 $ 231,205 $ 191,491
Securities......................................... 129,620 118,072 112,624 103,680 110,761 92,399 58,683
Total loans........................................ 385,023 325,777 348,910 280,597 177,206 125,769 116,311
Allowance for loan losses.......................... 5,722 3,104 3,569 2,141 1,612 1,264 1,345
Total deposits..................................... 479,615 432,513 445,859 381,289 285,153 197,135 162,768
Total shareholders' equity......................... 35,587 29,698 30,506 25,398 23,519 18,595 17,577

PERFORMANCE RATIOS(1):
Return on average assets........................... 1.04% 1.03% 0.89% 0.54% 0.96% 1.21% 1.09%
Return on average equity........................... 16.56 17.00 14.69 8.36 12.06 14.74 12.49
Net interest margin................................ 5.45 5.19 5.22 5.02 5.27 5.42 5.44
Efficiency ratio................................... 64.38 67.13 66.48 76.73 72.82 72.22 75.04

ASSET QUALITY RATIOS:
Nonperforming assets to total loans and ORE........ 0.89% 1.46% 0.94% 0.82% 1.11% 1.23% 2.33%
Nonperforming assets to total assets............... 0.62 0.97 0.65 0.54 0.61 0.67 1.44
Net loan charge-offs to average loans.............. 0.10 0.18 0.62 0.71 0.30 0.42 0.54
Allowance for loan losses to total loans........... 1.49 0.95 1.02 0.76 0.91 1.01 1.16
Allowance for loan losses to nonperforming
loans(2)......................................... 200.63 118.84 134.02 135.42 111.48 130.71 107.17

CAPITAL RATIOS:
Leverage ratio..................................... 6.39% 6.04% 5.92% 6.04% 7.30% 8.63% 8.96%
Tier 1 risk-based capital ratio.................... 8.94 8.48 8.45 8.69 10.65 12.82 13.16
Total risk-based capital ratio..................... 10.19 9.39 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
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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," "ESTIMATES," "EXPECTS,"
"WILL," "WOULD," "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 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.

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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. The Common Stock has been 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 first quarter of 1999,
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. As of
September 30, 1998, the Bank's capital surplus exceeded 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 September 30, 1998, an aggregate of
approximately $10.3 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."

7
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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 7,004,560 shares of Common Stock outstanding after the
Offering. The Company, its executive officers and directors and certain
shareholders (who collectively will own 55.9% 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 124 shareholders of record. The
currently outstanding shares are not "restricted securities" as that term is
defined by Rule 144 promulgated under the Securities Act and will be freely
tradeable; provided, however that shares currently held by "affiliates" of the
Company will only be eligible for sale in compliance with Rule 144 volume and
other requirements with the exception of the holding period requirement of Rule
144(d) of the Securities Act which will not apply. 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. If the Company
does not adequately address this risk, a material adverse impact on the
Company's financial condition and results of operation could result. The Company
currently 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 similar items. The
provider has certified the Company's "core" banking applications to be Year 2000
compliant, and testing has been completed. The Company believes that it is in
compliance with federal bank regulatory directives in this area, including the
timetable for achieving

8
<PAGE>

compliance. 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.

The Company will also be impacted by Year 2000 non-compliance of third
parties with whom the Company transacts business, but it is difficult to measure
this impact. If the operations of the Company's customers are disrupted by Year
2000-related issues, such customers may be unable to satisfy their obligations
to the Company as they become due. Furthermore, if the Federal Reserve Bank of
Dallas does not become Year 2000 compliant, the Company could experience
significant difficulties. There can be no assurance that the operational and
financial systems of the Company, its suppliers or its customers will not be
affected by Year 2000 software problems.

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 purchased hardware and core banking application software to perform
data processing functions in-house beginning in the first half of 1999. The data
processing software purchased by the Company is the same software that is
currently used by the Company in its vendor provided system. The Company's
in-house system is scheduled for Year 2000 compliance testing and certification
in the first half of 1999. 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Year 2000 Compliance."

DILUTION OF COMMON STOCK

Investors purchasing shares of Common Stock in the Offering will incur
immediate dilution of approximately 38.43% in their investment, in that the
tangible book value of the Company after the Offering will be approximately
$7.08 compared with an assumed initial public offering price of $11.50 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, and particularly
during the past several months, experienced extreme 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.

9
<PAGE>
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 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 September 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, four 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 $551.2 million at September 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 nine
months ended September 30, 1998, the Company recorded net income of $4.1
million. Return on shareholders' equity for the nine months ended September 30,
1998 was 16.56%. Asset growth has also been strong, with total assets increasing
from $168.9 at December 31, 1990 to $551.2 million at September 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 served by the Company. Multi-ethnic

11
<PAGE>
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 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 September
30, 1998, the Company's commercial and industrial loan portfolio totaled
$238.8 million or 61.3% of the gross loan portfolio. At that date, the
Company had a concentration of loans to hotels and motels of $57.6 million.
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 September 30, 1998, the Company had a commercial mortgage
portfolio of $90.0 million.

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 receives a fee to
process residential mortgage loans which are pre-sold to and underwritten by
third party mortgage companies. The Company does not fund or service the
loans 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, which are retained
in the Company's portfolio. At September 30, 1998, the Company's residential
mortgage portfolio totaled $12.9 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 September 30,
1998, the Company had $37.4 million in the retained portion of SBA loans,
approximately $17.6 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 provided by the Company 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 1,000 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 nine
months of 1998 totaled $58.5 million. At September 30, 1998, factored
receivables outstanding totaled $9.9 million, compared with $2.1 million at
December 31, 1995. In addition to enhancing the Company's 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 September 30, 1998, the Company's aggregate trade
finance portfolio commitments totaled approximately $8.8 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.

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. The lease for the Company's corporate

13
<PAGE>

headquarters will expire in March of 2000. The Company is in the process of
evaluating options for its corporate headquarters including a renewal of the
existing lease or relocation to another facility.

<TABLE>
<CAPTION>
DEPOSITS
AT SEPTEMBER 30,
LOCATION 1998 DATE OPENED
- -------------------------------------------------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Houston Area:
Bellaire Blvd. ................................. $194,435 1987
East............................................ 82,121 1989
Galleria........................................ 65,470 1991
Chinatown....................................... 20,006 1993
Sugar Land...................................... 32,871 1995
Harwin.......................................... 15,180 1996
Clear Lake...................................... 17,783 1996
Veterans Memorial............................... 11,407 1997
Milam........................................... 6,621 1998
Dallas Area:
Richardson...................................... 30,809 1996
Dallas (Harry Hines) (1)........................ 2,912 1998
New Orleans (2)................................... N/A 1996
</TABLE>

- ---------

(1) Opened in June of 1998.

(2) 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 September 30, 1998, the Company had 259 full-time equivalent
employees, 34 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 have a
material effect on the business, results of operations or financial position of
the Company or the Bank.

14
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering (based upon
the initial public offering price of $11.50 per share, the midpoint of the
estimated offering range), after deducting the underwriting discount and
estimated expenses, are estimated to be approximately $14.0 million, or $16.2
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 asset 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 first quarter of 1999. 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. As of September 30, 1998, the Bank's capital
surplus exceeded 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
September 30, 1998, an aggregate of approximately $10.3 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 September 30, 1998, the tangible book value of the Common Stock was
$6.29 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 1,350,000
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 September 30, 1998 would have been
$7.08 per share. This represents an immediate

15
<PAGE>

increase in net tangible book value of $0.79 per share to current shareholders
and an immediate dilution of $4.42 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)............................................................ $ 11.50
---------
Tangible book value per share before Offering..................... 6.29
Increase per share attributable to new investors.................. 0.79
---------
Pro forma tangible book value per share after Offering.............. 7.08
---------
Dilution to new investors........................................... $ 4.42
---------
---------
</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 202,500 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 September 30, 1998, and as adjusted to give effect to the sale by
the Company of 1,350,000 shares of Common Stock offered hereby, at a per share
price of $11.50 (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
SEPTEMBER 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, 7,004,560 shares issued and outstanding, as adjusted(1).................. 5,655 7,005
Additional paid-in-capital.............................................................. 12,848 25,486
Retained earnings....................................................................... 16,103 16,103
Accumulated other comprehensive income.................................................. 981 981
--------- -----------
Total shareholders' equity............................................................ $ 35,587 $ 49,575
--------- -----------
--------- -----------
</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. The shares of Common Stock have been 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 nine months
ended September 30, 1998 and September 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 nine months ended September
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
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 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................... $ 35,244 $ 30,033 $ 41,155 $ 31,523 $ 23,065 $ 15,643 $ 13,343
Interest expense.................. 15,060 13,272 18,138 13,927 9,640 5,155 4,130
--------- --------- --------- --------- --------- --------- ---------
Net interest income............. 20,184 16,761 23,017 17,596 13,425 10,488 9,213
Provision for loan losses......... 2,520 1,504 3,350 2,118 792 422 557
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses..... 17,664 15,257 19,667 15,478 12,633 10,066 8,656
Noninterest income................ 3,873 3,209 4,391 3,446 2,903 3,312 3,681
Noninterest expense............... 15,489 13,405 18,096 16,102 11,845 9,978 9,520
--------- --------- --------- --------- --------- --------- ---------
Net income before taxes......... 6,048 5,061 5,962 2,822 3,691 3,400 2,817
Provision for income taxes........ 1,948 1,527 1,794 809 1,091 895 798
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 4,100 $ 3,534 $ 4,168 $ 2,013 $ 2,600 $ 2,505 $ 2,019
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net income:
Basic........................... $ 0.73 $ 0.63 $ 0.75 $ 0.38 $ 0.52 $ 0.54 $ 0.45
Diluted......................... 0.71 0.63 0.74 0.37 0.51 0.53 0.44
Book value........................ 6.29 5.34 5.49 4.73 4.38 3.99 3.77
Tangible book value............... 6.29 5.34 5.49 4.73 4.38 3.99 3.77
Cash dividends.................... -- -- -- -- -- 0.125 --
Weighted average shares
outstanding (in thousands):
Basic........................... 5,625 5,589 5,581 5,364 5,015 4,658 4,534
Diluted......................... 5,745 5,635 5,616 5,444 5,104 4,764 4,641

BALANCE SHEET DATA:
Total assets...................... $ 551,189 $ 493,954 $ 505,051 $ 426,987 $ 322,799 $ 231,205 $ 191,491
Securities........................ 129,620 118,072 112,624 103,680 110,761 92,399 58,683
Total loans....................... 385,023 325,777 348,910 280,597 177,206 125,769 116,311
Allowance for loan losses......... 5,722 3,104 3,569 2,141 1,612 1,264 1,345
Total deposits.................... 479,615 432,513 445,859 381,289 285,153 197,135 162,768
Total shareholders' equity........ 35,587 29,698 30,506 25,398 23,519 18,595 17,577
</TABLE>

18
<PAGE>

PERFORMANCE RATIOS(1):
Return on average assets.......... 1.04% 1.03% 0.89% 0.54% 0.96% 1.21% 1.09%
Return on average equity.......... 16.56 17.00 14.69 8.36 12.06 14.74 12.49
Net interest margin............... 5.45 5.19 5.22 5.02 5.27 5.42 5.44
Efficiency ratio(2)............... 64.38 67.13 66.48 76.73 72.82 72.22 75.04

ASSET QUALITY RATIOS(3):
Nonperforming assets to total
loans and other real estate..... 0.89% 1.46% 0.94% 0.82% 1.11% 1.23% 2.33%
Nonperforming assets to total
assets.......................... 0.62 0.97 0.65 0.54 0.61 0.67 1.44
Net loan charge-offs to average
loans........................... 0.10 0.18 0.62 0.71 0.30 0.42 0.54
Allowance for loan losses to total
loans........................... 1.49 0.95 1.02 0.76 0.91 1.01 1.16
Allowance for loan losses to
nonperforming loans(4).......... 200.63 118.84 134.02 135.42 111.48 130.71 107.17

CAPITAL RATIOS(3):
Leverage ratio.................... 6.39% 6.04% 5.92% 6.04% 7.30% 8.63% 8.96%
Average shareholders' equity to
average total assets............ 6.30 6.06 6.05 6.45 7.95 8.19 8.71
Tier 1 risk-based capital ratio... 8.94 8.48 8.45 8.69 10.65 12.82 13.16
Total risk-based capital ratio.... 10.19 9.39 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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

OVERVIEW

Net income for the nine months ended September 30, 1998 was $4.1 million, an
increase of $566,000 or 16.0% over net income of $3.5 million for the nine
months ended September 30, 1997. Net income per diluted common share was $0.71
for the nine months ended September 30, 1998 compared with $0.63 for the nine
months ended September 30, 1997, an increase of 12.7%. 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 1.04% and 16.56%, respectively,
for the nine months ended September 30, 1998 compared with 1.03% and 17.00%,
respectively, for the same time period in 1997.

Total assets were $551.2 million at September 30, 1998, an increase of $46.1
million or 9.1% over total assets of $505.1 at December 31, 1997. In 1998, the
Company opened two new branches which accounted for $11.2 million or 24.3% of
the growth in total assets for the nine month period. When compared with total
deposits at December 31, 1997 of $445.9 million, total deposits of $479.6
million at September 30, 1998 reflect deposit growth of $33.7 million or 7.6%.
During this nine month period, noninterest-bearing deposits grew $6.0 million or
8.1% while interest-bearing deposits grew $27.7 million or 7.5%. Total
shareholders' equity was $35.6 million at September 30, 1998, representing an
increase of $5.1 million or 16.7% 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 nine months ended September 30, 1998 was $20.2
million compared with $16.8 million for the nine months ended September 30,
1997, an increase of $3.4 million or 20.2%. Net interest income increased as a
result of higher interest-earning assets derived primarily from loan growth and
a higher yield in the loan portfolio. Average interest-earning assets increased
to $493.7 million for the nine months ended September 30, 1998 from $439.0
million for the nine months ended September 30, 1997, an increase of $54.7
million or 12.5%. Average total loans increased to $360.1 million for the nine
months ended September 30, 1998 from $301.8 million for the nine months ended
September 30, 1997, an increase of $58.3 million or 19.3%. 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 $396.9 million
for the nine months ended September 30, 1998 from $346.1 million for the nine
months ended September 30, 1997, an increase of $50.8 million or 14.7%.

Interest expense increased $1.8 million to $15.1 million at September 30,
1998 compared with $13.3 million at September 30, 1997. The increase was
primarily the result of growth in average time

20
<PAGE>

deposits of $33.3 million to $278.5 million at September 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
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 portion of the Company's asset growth in the
future.

The Company posted net interest margins of 5.45% and 5.19% and net interest
spreads of 4.58% and 4.41% for the periods ended September 30, 1998 and
September 30, 1997, respectively. The increase in the net interest margin from
the first nine months of 1997 to the first nine months of 1998 reflects a 23
basis point increase in the yield on average interest-earning assets, which was
partially offset by a 6 basis point increase in the cost of interest-bearing
liabilities. The yield on average interest-earning assets increased to 9.52% for
the nine months ended September 30, 1998 from 9.29% for the nine months ended
September 30, 1997. The increase in the yield on average interest-earning assets
was due primarily to growth in higher yielding commercial and industrial loans.
The cost of interest-bearing liabilities increased 6 basis points to 4.94% for
the nine months ended September 30, 1998 when compared with the nine months
ended September 30, 1997. Average time deposit rates paid increased 6 basis
points to 5.54% for the first nine months of 1998 from the same period of 1997.
For the same periods, average volume increased from $245.2 million to $278.5
million, an increase of 13.6%.

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>
NINE MONTHS ENDED SEPTEMBER 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:
Total loans................................ $ 360,107 $ 28,934 10.71% $ 301,761 $ 23,984 10.60%
Taxable securities......................... 92,532 4,535 6.53 94,743 4,585 6.45
Tax-exempt securities...................... 17,591 718 5.44 17,529 726 5.52
Federal funds sold and other temporary
investments.............................. 23,449 1,057 6.01 16,863 738 5.84
----------- --------- ----------- ---------
Total interest-earning assets............ 493,679 35,244 9.52% 430,896 30,033 9.29%
--------- ---------
Less allowance for loan losses............... (4,739) (2,569)
----------- -----------
Total interest-earning assets, net of
allowance for loan losses.................. 488,940 428,327
Nonearning assets............................ 35,317 30,057
----------- -----------
Total assets........................... $ 524,257 $ 458,384
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits........... $ 29,668 $ 579 2.60% $ 26,246 $ 511 2.60%
Savings and money market accounts.......... 88,679 2,489 3.74 74,663 1,987 3.55
Time deposits.............................. 278,507 11,579 5.54 245,223 10,070 5.48
Federal funds purchased and securities sold
under repurchase agreements.............. 989 42 5.66 989 40 5.39
Other borrowings........................... 9,016 371 5.49 15,424 664 5.74
----------- --------- ----------- ---------
Total interest-bearing liabilities..... 406,859 15,060 4.94% 362,545 13,272 4.88%
--------- ---------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits........ 77,918 62,143
Other liabilities.......................... 6,468 5,908
----------- -----------
Total liabilities...................... 491,245 430,596
Shareholders' equity......................... 33,012 27,788
----------- -----------
Total liabilities and shareholders'
equity............................... $ 524,257 $ 458,384
----------- -----------
----------- -----------
Net interest income.......................... $ 20,184 $ 16,761
--------- ---------
--------- ---------
Net interest spread.......................... 4.58% 4.41%
----- -----
----- -----
Net interest margin.......................... 5.45% 5.19%
----- -----
----- -----
</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>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 VS. 1997
-------------------------------
INCREASE (DECREASE)
DUE TO
--------------------
VOLUME RATE TOTAL
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans.................................................... $ 3,534 $ 1,416 $ 4,950
Securities..................................................... (60) 2 (58)
Federal funds sold and other temporary investments............. 278 41 319
--------- --------- ---------
Total increase in interest income............................ 3,752 1,459 5,211
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits............................... 66 2 68
Savings and money market accounts.............................. 330 172 502
Time deposits.................................................. 1,319 190 1,509
Federal funds purchased........................................ (1) 3 2
Other borrowings............................................... (270) (23) (293)
--------- --------- ---------
Total increase in interest expense........................... 1,444 344 1,788
--------- --------- ---------
Increase in net interest income.................................. $ 2,308 $ 1,115 $ 3,423
--------- --------- ---------
--------- --------- ---------
</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 $2.5 million for the nine months ended
September 30, 1998 from $1.5 million for the same time period in 1997, an
increase of $1.0 million or 66.7%. 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 nine months ended September 30, 1998 was $3.9 million, an
increase of $664,000 or 20.7% from $3.2 million for the same period in 1997. It
is the Company's goal to

23
<PAGE>
continue to 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>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts........................................ $ 2,331 $ 1,664
Other loan-related fees.................................................... 1,061 1,035
Letters of credit commissions and fees..................................... 280 246
Gain on sale of investment securities, net................................. -- 151
Other noninterest income................................................... 201 113
--------- ---------
Total noninterest income................................................. $ 3,873 $ 3,209
--------- ---------
--------- ---------
</TABLE>

The increase in service charges on deposit accounts and total noninterest
income for the first nine months of 1998 compared with the first nine 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 nine month period ended September 30, 1998, noninterest expense
increased $2.1 million or 15.7% to $15.5 million from $13.4 million for the
period ended September 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 64.4% for the nine
months ended September 30, 1998 and 67.1% for the nine months ended September
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>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits...................................... $ 7,197 $ 6,488
Non-staff expenses:
Occupancy........................................................... 3,573 2,823
Other real estate, net.............................................. 264 323
Data processing..................................................... 438 327
Professional fees................................................... 387 325
Advertising......................................................... 283 251
Consultants/contract labor.......................................... 340 368
Director compensation............................................... 248 270
Printing and supplies............................................... 333 264
Telecommunications.................................................. 311 262
Other noninterest expense........................................... 2,115 1,704
--------- ---------
Total non-staff expenses.......................................... 8,292 6,917
--------- ---------
Total noninterest expense......................................... $ 15,489 $ 13,405
--------- ---------
--------- ---------
</TABLE>

Employee compensation and benefits expense for the nine months ended
September 30, 1998 was $7.2 million, reflecting an increase of $709,000 or 10.9%
from $6.5 million in the same period of 1997. The

24
<PAGE>

increase was principally due to additional staff associated with the new
branches. Total full-time equivalent employees at September 30, 1998 increased
to 259 from 222 at September 30, 1997.

Non-staff expenses increased to $8.3 million for the nine month period ended
September 30, 1998 from $6.9 million for the same period in 1997, an increase of
$1.4 million or 20.3%. 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 $144,000 in the first nine months of
1998 and $99,000 in the first nine months of 1997. During the nine months ended
September 30, 1998, income tax expense was $1.9 million compared with $1.5
million for the nine months ended September 30, 1997. The effective tax rates
for the nine months ended September 30, 1998 and September 30, 1997 were 31.2%
and 30.2%, 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 condition or results of
operations of the Company.

FINANCIAL CONDITION

LOAN PORTFOLIO

Total loans aggregated $385.0 million at September 30, 1998, an increase of
$59.2 million or 18.2% from $325.8 million at September 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 SEPTEMBER 30,
--------------------------------------------
1998 1997
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............................................. $ 238,790 61.34% $ 173,386 52.59%
Real estate mortgage
Residential......................................................... 12,853 3.30 11,566 3.51
Commercial.......................................................... 89,955 23.11 106,357 32.26
---------- --------- ---------- ---------
102,808 26.41 117,923 35.77
Real estate construction
Residential......................................................... 11,672 3.00 7,027 2.13
Commercial.......................................................... 15,040 3.86 15,334 4.65
---------- --------- ---------- ---------
26,712 6.86 22,361 6.78
---------- --------- ---------- ---------
Consumer and other.................................................... 11,043 2.84 10,158 3.08
Factored receivables.................................................. 9,927 2.55 5,867 1.78
---------- --------- ---------- ---------
Gross loans........................................................... 389,280 100.00% 329,695 100.00%
--------- ---------
--------- ---------
Less: unearned discounts, interest and deferred fees.................. (4,257) (3,918)
---------- ----------
Total loans......................................................... $ 385,023 $ 325,777
---------- ----------
---------- ----------
</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 the Asian and Hispanic communities:

26
<PAGE>

underwritten on the basis of the borrower's ability to service such debt as
reflected by cash flow 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. As a result, commercial loans involve additional complexities,
variables and risks and require more thorough underwriting and servicing than
other types of loans. 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 operated, real estate is frequently the primary source of
collateral. As of September 30, 1998, approximately $101.5 million or 42.5% 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
September 30, 1998, the average commercial loan amount was $150,000. As of
September 30, 1998, the Company's commercial and industrial loan portfolio
totaled $238.8 million or 61.3% of the gross loan portfolio. At that date, the
Company had a concentration of loans to hotels and motels of $57.6 million.
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. Payments on loans secured by such properties are often
dependent on the successful operation or management of the properties.
Accordingly, repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of
loans. 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 September 30, 1998, the Company had a commercial mortgage
portfolio of $90.0 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 construction 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. Construction loans involve
additional risks attributable to the fact that loan funds are advanced upon the
security of a project under construction, and the project is of uncertain value
prior to its completion. Because of uncertainties inherent in estimating
construction costs, the market value of the completed project and the effects of
governmental regulation on real property, it can be difficult to accurately
evaluate the total funds required to complete a project and the related loan to
value ratio. As a result of these uncertainties, construction lending often
involves the disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project rather than the ability of a
borrower or guarantor to repay the loan. If the Company is forced to foreclose
on a project prior to completion, there is no assurance that the Company will be
able to recover all of the unpaid portion of the loan. In addition, the Company
may be required to fund additional amounts to complete a project and may have to
hold the property for an indeterminable period of time. While the Company has
underwriting procedures designed to identify what it believes to be acceptable
levels of risks in construction lending, no assurance can be given that these
procedures will prevent losses from the risks described above. As of September
30, 1998, the Company had a real estate construction portfolio of $26.7 million,
of which $11.7 million was residential and $15.0 million was commercial.

27
<PAGE>

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
receives a fee to process these residential mortgage loans, which are then
pre-sold to and underwritten by third party mortgage companies. The Company does
not fund or service these loans. 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 $17.3 million during the nine month
period ended on September 30, 1998. Since the Company does not fund these loans,
there is no risk of nonpayment to the Company. 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, which are retained in the Company's
portfolio. Residential mortgage collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. At September 30,
1998, the Company's residential mortgage portfolio totaled $12.9 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 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 September 30, 1998, the Company had $37.4 million in the
retained portion of SBA loans, approximately $17.6 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 nine month period ended September 30, 1998 were $24.4
million, an increase of $10.1 million from $14.3 million for the first nine
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 1,000
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. As a result, these transactions are subject to risks relating to
disputes between the Company's client and its customers in instances where the
customer refuses to make payment. 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 nine months of 1998 totaled $58.5 million. At
September 30, 1998, factored receivables outstanding totaled $9.9 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.

28
<PAGE>

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. Trade finance credit facilities rely heavily on
the quality of the business customer's accounts receivable and the ability to
perform the underlying transaction which, if monitored and controlled properly,
limits the financial risks to the Company associated with this short-term
financing. To mitigate the risk of nonpayment, the Company generally obtains a
governmental guaranty or credit insurance from a governmental agency such as the
Ex-Im Bank. At September 30, 1998, the Company's aggregate trade finance
portfolio commitments totaled approximately $8.8 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.

The Company extends credit for the purpose of establishing long-term
relationships with its customers. The Company mitigates the risks inherent in
lending by focusing on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and stable cash flows. In
addition to these primary sources of repayment, the Company looks to tangible
collateral and personal guarantees as secondary sources of repayment. Lending
officers are provided with detailed underwriting policies covering all lending
activities in which the Company is engaged and that require all lenders to
obtain appropriate approvals for the extension of credit. The Company also
maintains documentation requirements and extensive credit quality assurance
practices in order to identify credit portfolio weaknesses as early as possible
so any exposures that are discovered may be reduced.

Inherent in all lending is the risk of nonpayment. The types of collateral
required, the terms of the loans and the underwriting practices discussed under
each category above are all designed to minimize the risk of nonpayment. In
addition, as further risk protection, the Company rarely makes loans at its
legal lending limit. Although the Company's legal loan limit is $6.1 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. The Company's policies and procedures designed to minimize the
risk of nonpayment with respect to outstanding loans are discussed under
"--Financial Condition--Nonperforming Assets."

At September 30, 1998, the Company had gross loan concentrations (greater
than 25% of capital) in the following industries:

<TABLE>
<CAPTION>
AS OF SEPTEMBER
30, 1998
------------------
(IN THOUSANDS)
<S> <C>
Hotels/motels............................................................. $ 57,640
Retail centers............................................................ 46,123
Restaurants............................................................... 20,613
Apartment buildings....................................................... 15,515
Convenience/gasoline stations............................................. 9,703
</TABLE>

29
<PAGE>

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 September 30, 1998 are
summarized in the following table:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 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........................................ $ 57,206 $ 123,745 $ 57,839 $ 238,790
Real estate mortgage
Residential.................................................... 1,251 5,753 5,849 12,853
Commercial..................................................... 11,681 71,238 7,036 89,955
Real estate construction
Residential.................................................... 7,527 4,145 -- 11,672
Commercial..................................................... 456 7,573 7,011 15,040
--------- ------------ ----------- ----------
Total........................................................ $ 78,121 $ 212,454 $ 77,735 $ 368,310
--------- ------------ ----------- ----------
--------- ------------ ----------- ----------

Loans with a predetermined interest rate......................... $ 29,077 $ 42,092 $ 13,090 $ 84,259
Loans with a floating interest rate.............................. 49,044 170,362 64,645 284,051
--------- ------------ ----------- ----------
Total........................................................ $ 78,121 $ 212,454 $ 77,735 $ 368,310
--------- ------------ ----------- ----------
--------- ------------ ----------- ----------
</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. 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) decreased from
$4.8 million at September 30, 1997 to $3.4 million at September 30, 1998. The
decrease was primarily comprised of a $1.6 million decrease in other real

30
<PAGE>

estate, partially offset by an increase in nonaccrual loans of $303,000.
Nonaccrual loans increased primarily due to three loans added during 1998
aggregating $991,000. This amount was partially offset by a $618,000 real estate
loan, which was sold immediately after foreclosure. Other real estate decreased
significantly from $2.2 million to $575,000 primarily due to the sale of a
property with a book value of approximately $1.5 million. The Company had no
restructured loans as of September 30, 1998 or September 30, 1997.

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

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Nonaccrual loans.......................................................... $ 2,705 $ 2,402
Accruing loans 90 days or more past due................................... 147 210
Other real estate......................................................... 575 2,160
--------- ---------
Total nonperforming assets.............................................. $ 3,427 $ 4,772
--------- ---------
--------- ---------
Nonperforming assets to total loans and other real estate................. 0.89% 1.46%
Nonperforming assets to total assets...................................... 0.62% 0.97%
</TABLE>

The Company would have recorded additional interest income of approximately
$125,000 in the first nine months of 1998 on nonaccrual loans if the loans had
been current in accordance with original terms. At September 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.

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.

31
<PAGE>
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 nine months ended September 30, 1998, net loan charge-offs totaled
$367,000 or 0.1% of average loans compared with $541,000 or 0.2% of average
loans for the nine months ended September 30, 1997. During the nine months ended
September 30, 1998, the Company recorded a provision for loan losses of $2.5
million compared with $1.5 million for the nine months ended September 30, 1997.
At September 30, 1998, the allowance totaled $5.7 million, or 1.5% of total
loans resulting in an allowance to nonperforming loans of 200.6%.

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.

32
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average loans outstanding......................... $360,107 $301,761
-------- --------
-------- --------
Total loans outstanding at end of period.......... $385,023 $325,777
-------- --------
-------- --------
Allowance for loan losses at beginning of
period.......................................... $ 3,569 $ 2,141
Provision for loan losses......................... 2,520 1,504
Charge-offs:
Commercial and industrial....................... (222) (229)
Real estate - mortgage.......................... (114) --
Real estate - construction...................... -- --
Consumer and other.............................. (160) (483)
-------- --------
Total charge-offs............................. (496) (712)
-------- --------
Recoveries:
Commercial and industrial....................... 70 145
Real estate - mortgage.......................... 17 --
Real estate - construction...................... 16 --
Consumer and other.............................. 26 26
-------- --------
Total recoveries.............................. 129 171
-------- --------
Net loan charge-offs.............................. (367) (541)
-------- --------
Allowance for loan losses at end of period........ $ 5,722 $ 3,104
-------- --------
-------- --------
Ratio of allowance to end of period total loans... 1.49% 0.95%
Ratio of net loan charge-offs to average loans.... 0.10 0.18
Ratio of allowance to end of period nonperforming
loans........................................... 200.63 118.84
</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 SEPTEMBER 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........................................ $ 3,356 61.34% $ 1,738 52.59%
Real estate - mortgage........................................... 1,089 26.41 699 35.77
Real estate - construction....................................... 137 6.86 118 6.78
Consumer and other............................................... 385 2.84 204 3.08
Factored receivables............................................. 507 2.55 255 1.78
Unallocated...................................................... 248 -- 90 --
--------- ------ --------- ------
Total allowance for loan losses................................ $ 5,722 100.00% $ 3,104 100.00%
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>

33
<PAGE>

The Company believes that the allowance for loan losses at September 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 September 30, 1998.

SECURITIES

The Company uses its securities portfolio primarily as a source of income
and secondarily as a source of liquidity. At September 30, 1998, investment
securities totaled $129.6 million, an increase of $11.5 million from $118.1
million at September 30, 1997. At September 30, 1998, investment securities
represented 23.5% of total assets compared with 23.9% of total assets at
September 30, 1997. The yield on the investment portfolio for the nine months
ended September 30, 1998 was 6.3% compared with a yield of 6.4% for the nine
months ended September 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 SEPTEMBER 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... $ -- --% $ 1,983 6.17% $ -- --% $ -- --%
U.S. Government agency
securities............... -- 5.90 22,672 6.36 35,861 6.62 46,223 6.58
Municipal securities....... -- -- 2,686 4.72 11,263 5.01 3,722 5.41
Federal funds sold......... 7,265 6.11 -- -- -- -- -- --
Temporary investments...... 1,008 6.50 -- -- -- -- -- --
Other securities........... 3,104 6.00 -- -- -- -- 529 5.89
----------- --- ----------- --- ----------- --- ----------- ---
Total securities......... $ 11,377 6.11% $ 27,341 6.19% $ 47,124 6.24% $ 50,474 6.49%
----------- --- ----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- --- ----------- ---

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

<S> <C> <C>
U.S. Treasury securities... $ 1,983 6.17%
U.S. Government agency
securities............... 104,756 6.55
Municipal securities....... 17,671 5.05
Federal funds sold......... 7,265 6.11
Temporary investments...... 1,008 6.50
Other securities........... 3,633 5.98
--------- ---
Total securities......... $ 136,316 6.31%
--------- ---
--------- ---
</TABLE>

34
<PAGE>

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

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ----------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................................... $ 1,983 $ 92 $ -- $ 2,075
U.S. Government agency securities.................................. 54,660 921 (52) 55,529
Municipal securities............................................... 10,301 616 -- 10,917
Other securities................................................... 3,633 -- -- 3,633
----------- ----------- --- ---------
Total securities................................................. $ 70,577 $ 1,629 $ (52) $ 72,154
----------- ----------- --- ---------
----------- ----------- --- ---------
</TABLE>

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

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ----------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government agency securities.................................. $ 50,096 $ 927 $ (39) $ 50,984
Municipal securities............................................... 7,370 296 -- 7,666
----------- ----------- --- ---------
Total securities................................................. $ 57,466 $ 1,223 $ (39) $ 58,650
----------- ----------- --- ---------
----------- ----------- --- ---------
</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 September 30, 1998 were $1.8 million in
agency-issued collateral mortgage obligations.

At September 30, 1998, 56.0% 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 $10.3 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 September 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. In a declining interest
rate environment, the likelihood that these options will be called may increase.

35
<PAGE>
DEPOSITS

The Company's lending and investing activities are funded principally by
deposits, approximately 42.1% of which were demand, savings and money market
deposits at September 30, 1998. Average noninterest-bearing deposits at
September 30, 1998 were $77.9 million compared with $62.1 million for the first
nine months of 1997, an increase of $15.8 million or 25.4%. Approximately 16.4%
of average deposits for the nine months ended September 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 nine months ended September 30, 1998
were $474.8 million or 16.3% over average total deposits during the same period
in 1997. The Company's total deposits at September 30, 1998, were $479.6
million, up $47.1 million or 10.9% over total deposits at September 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 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 $132.1 million of time deposits greater than $100,000 at
September 30, 1998, accounts totaling $73.1 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 nine months ended September 30, 1998 are
presented below:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
---------------------
AMOUNT RATE
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Interest-bearing deposits:
Money market checking............................................... $ 29,668 2.60%
Savings and money market deposits................................... 88,679 3.74
Time deposits less than $100,000.................................... 155,781 5.41
Time deposits $100,000 and over..................................... 122,727 5.71
----------
Total interest-bearing deposits................................. 396,855 4.92
Noninterest-bearing deposits.......................................... 77,918 --
----------
Total deposits.................................................. $ 474,773 4.11%
---------- ---
---------- ---
</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 SEPTEMBER 30,
1998
-----------------------
(IN THOUSANDS)
<S> <C>
Three months or less................................................. $ 41,373
Over three through six months........................................ 27,332
Over six through 12 months........................................... 44,899
Over 12 months....................................................... 18,498
--------
Total.......................................................... $ 132,102
--------
--------
</TABLE>

36
<PAGE>

OTHER BORROWINGS

During the third quarter of 1998, the Company obtained two ten-year loans
totaling $25.0 million from the Federal Home Loan Bank ("FHLB") of Dallas to
further leverage its balance sheet. The loans bear interest at the average rate
of 5.0% per annum until the fifth anniversary of the loans, at which time the
loans may be repaid or the interest rate may be renegotiated. Other short-term
borrowings principally consist of U.S. Treasury tax note option accounts and
have a maturity of 14 days or less.

The following table presents the categories of other borrowings:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased and securities sold under repurchase agreements:
on September 30........................................................................... $ -- $ --
average during the period................................................................. 989 989
maximum month-end balance during the period............................................... 5,000 5,000
FHLB notes:
on September 30........................................................................... $ 25,000 $ 15,900
average during the period................................................................. 8,519 14,802
maximum month-end balance during the period............................................... 25,000 18,800
Other short-term borrowings:
on September 30........................................................................... $ 430 $ 543
average during the period................................................................. 497 622
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 September 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.

37
<PAGE>
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 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 September 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....................... $ 18,695 $ 7,681 $ 7,913 $ 22,284 $ 21,436 $ 21,784 $29,827 $129,620
Total loans...................... 257,001 63,531 19,537 28,965 10,780 5,010 199 385,023
Federal funds sold and other
temporary investments.......... 8,273 -- -- -- -- -- -- 8,273
--------- ----------- ---------- ---------- -------- -------- -------- --------
Total interest-earning assets.... 283,969 71,212 27,450 51,249 32,216 $ 26,794 $30,026 522,916
--------- ----------- ---------- ---------- -------- -------- -------- --------
Interest-bearing liabilities:
Demand, money market and savings
deposits....................... -- 48,421 24,210 48,420 -- -- -- 121,051
Time deposits.................... 43,877 114,566 89,775 27,577 2,140 -- -- 277,935
Other borrowings................. 430 -- -- -- 25,000 -- 25,430
--------- ----------- ---------- ---------- -------- -------- -------- --------
Total interest-bearing
liabilities.................... 44,307 162,987 113,985 75,997 2,140 25,000 -- 424,416
--------- ----------- ---------- ---------- -------- -------- -------- --------
Period GAP....................... $ 239,662 $ (91,775) $ (86,535) $ (24,748) $ 30,076 $ 1,794 $30,026 $ 98,500
Cumulative GAP................... 239,662 147,887 61,352 36,604 66,680 68,474 98,500
Period GAP to total assets....... 43.48% (16.65)% (15.70)% (4.49)% 5.46% 0.33% 5.45%
Cumulative GAP to total assets... 43.48% 26.83% 11.13% 6.64% 12.10% 12.42% 17.87%
Cumulative interest-earning
assets to cumulative
interest-bearing liabilities... 640.91% 171.34% 119.10% 109.21% 116.69% 116.13% 123.21%
</TABLE>

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
$239.7 million, $147.9 million, and $61.4 million, respectively. With this
condition, the Company is susceptible to a

38
<PAGE>
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 an 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 instantaneous and sustained 200 basis point shift in market
interest rates.

Presented below, as of September 30, 1998, is an analysis of the Company's
interest rate risk as measured by changes in EVE for 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 $ 815 1.90% 7.79% 10 bp
0 bp -- -- 7.69% --
+200 bp (7,904) (18.39)% 6.41% (130) bp
</TABLE>

The percentage change in EVE as a result of a 200 basis point decrease in
interest rates at September 30, 1998 was 1.90% compared with 5.37% as of
December 31, 1997. The percentage change in EVE as a result of a 200 basis point
increase in interest rates on September 30, 1998 of (18.39%) was substantially
less than the (26.45%) change as of December 31, 1997.

The Company has attempted to narrow the bands of extremes in the investment
portfolio's performance acknowledging that some earnings opportunities must be
allowed to pass in the interest of minimizing extreme losses during periods of
volatile interest rates. The current interest rate environment has caused

39
<PAGE>

increased prepayment speeds in the Company's mortgage-backed securities as well
as accelerating call activity in U.S. Government agency fixed income securities.
As a result of a shift in investment philosophy combined with calls and
increased prepayments, management has been able to restructure the portfolio and
reduce the negative convexity.

The Company's EVE is most directly affected by the convexity and duration of
its investment portfolio. The duration and negative convexity of the Company's
investment portfolio produce disproportionate effects on the value of the
portfolio with changes in interest rates. Convexity measures the percentage of
portfolio price appreciation or depreciation relative to a decrease or increase
in interest rates. The higher the negative convexity, the greater the decline in
the value of a fixed income security as interest rates increase. The Company's
investment portfolio is primarily comprised of long-term, fixed income
securities, the value of which would be adversely affected in a rising interest
rate environment.

The prime rate in effect for both December 31, 1997 and September 30, 1998
was 8.5%. Since September 30, 1998 the prime rate has dropped to 7.75% and
management believes that in the short term the prime rate will remain relatively
stable.

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 FHLB.

40
<PAGE>

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 securities in safekeeping at the FHLB of Dallas. At September 30,
1998, the Company had approximately $22.5 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 September 30, 1998, the Company had fully utilized the
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

41
<PAGE>
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."

Shareholders' equity increased from $30.5 million at December 31, 1997 to
$35.6 million at September 30, 1998, an increase of $5.1 million or 16.7%. This
increase was primarily the result of net income of $4.1 million for the nine
months ended September 30, 1998.

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

<TABLE>
<CAPTION>
ACTUAL
RATIO AT
MINIMUM WELL SEPTEMBER 30,
REQUIRED CAPITALIZED 1998
---------- ----------- -------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio................... 3.00%(1) N/A 6.39%
Tier 1 risk-based capital
ratio.......................... 4.00 N/A 8.94
Risk-based capital ratio......... 8.00 N/A 10.19
THE BANK
Leverage ratio................... 3.00%(2) 5.00% 6.39%
Tier 1 risk-based capital
ratio.......................... 4.00 8.00 8.94
Risk-based capital ratio......... 8.00 10.00 10.19
</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

GENERAL The Year 2000 risk involves computer programs and computer software
that are not able to perform without interruption into the Year 2000. If
computer systems do not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on the date field could
fail or create erroneous results. Such erroneous results could affect interest,
payment or due dates or cause the temporary inability to process transactions,
send invoices or engage in similar normal business activities. If these issues
are not addressed by the Company, its suppliers and its borrowers, there could
be a material adverse impact on the Company's financial condition or results of
operations.

STATE OF READINESS. The Company formally initiated its Year 2000 project
and plan in November 1997 to insure that its operational and financial systems
will not be adversely affected by Year 2000 problems. The Company has formed a
Year 2000 project team and the Board of Directors and management are supporting
all compliance efforts and allocating the necessary resources to ensure
completion. An inventory of all systems and products (including both information
technology ("IT") and non-informational technology ("non-IT") systems) that
could be affected by the Year 2000 date change has been developed, verified and
categorized as to its importance to the Company and an assessment of all major
IT and critical non-IT systems has been completed. This assessment involved
inputting into IT systems test data which simulates the Year 2000 date change
and reviewing the system output for accuracy. The Company's assessment of
critical non-IT systems involved reviewing such systems to determine whether
they were date dependent. Based on such assessment, the Company believes that
none of its critical non-IT systems are date dependent. The software for the
Company's systems is provided through service bureaus and software vendors. The
Company has contacted all of its third party vendors and software providers and

42
<PAGE>

is requiring them to demonstrate and represent that the products provided are or
will be Year 2000 compliant and has planned a program of testing compliance. The
Company's service bureau, which performs substantially all of the Company's data
processing functions, has warranted in writing that its software is Year 2000
compliant and pursuant to applicable regulatory guidelines, the Company is
currently reviewing the results of user group tests performed by the service
provider to verify this assertion. In addition, the Company has purchased
hardware and core banking application software to perform all functions in-house
beginning in the first half of 1999. The data processing software purchased by
the Company is the same software that is currently used by the Company in its
vendor provided system. The Company's in-house system is scheduled for Year 2000
compliance testing and certification in the first half of 1999. 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.

Except as discussed above, the Company has completed the following phases of
its Year 2000 plan: (i) recognizing Year 2000 issues, (ii) assessing the impact
of Year 2000 issues on the Company's critical systems and (iii) upgrading
systems as necessary to resolve those Year 2000 issues which have been
identified. The Company is in the final stages of testing and implementing those
systems that have been upgraded.

COSTS OF COMPLIANCE. Management does not expect the costs of bringing the
Company's systems into Year 2000 compliance will have a material adverse effect
on the Company's financial condition, results of operations or liquidity. The
Company has budgeted $24,000 to address Year 2000 issues. As of September 30,
1998, the Company has not incurred any significant costs in relation to Year
2000. The largest potential risk to the Company concerning Year 2000 is the
malfunction of its data processing system. In the event its data processing
system does not function properly, the Company is prepared to perform functions
manually. The Company believes it is in compliance with regulatory guidelines
regarding Year 2000 compliance, including the timetable for achieving
compliance.

RISKS RELATED TO THIRD PARTIES. The impact of Year 2000 noncompliance by
third parties with which the Company transacts business cannot be accurately
gauged. The Company identified its largest dollar deposit (aggregate deposits
over $200,000) and loan ($250,000 or more) customers and, based on information
available to the Company, conducted a preliminary evaluation to determine which
of those customers are likely to be affected by Year 2000 issues. The Company
then surveyed those customers deemed at risk to determine their readiness with
respect to Year 2000 issues, including their awareness of Year 2000 issues,
plans to address such issues and progress with respect to such plans. The survey
included approximately 69.0% of all depositors with balances of $200,000 or
greater, which is approximately 10.0% of the Company's total dollar deposit
base, and all of its borrowers of $250,000 or more, which is approximately 69.0%
of the Company's total dollar loan base. This survey was completed in the third
quarter of 1998. As of the date of this Prospectus, substantially all of the
borrowers with aggregate credit facilities greater than $250,000 and
approximately 57.0% of depositors have responded to the survey and all of those
customers are aware of Year 2000 issues, are in the process of updating their
systems and have informed the Company that they believe they will be ready for
the Year 2000 date change by the end of 1999. To the extent a problem has been
identified, the Company intends to monitor the customer's progress in resolving
such problem. In the event that Year 2000 noncompliance adversely affects a
borrower, the Company may be required to charge off the loan to that borrower.
For a discussion of possible effects of such charge-offs, see "--Contingency
Plans" below. With respect to its borrowers, the Company includes in its loan
documents a Year 2000 disclosure form as an addendum to the loan agreement in
which the borrower represents and warrants its Year 2000 compliance to the
Company. The Company relies on the Federal Reserve Bank of Dallas for electronic
fund transfers and understands that the Federal Reserve Bank of Dallas expects
its systems to be Year 2000 compliant by the end of 1998.

CONTINGENCY PLAN. The Company has finalized its contingency planning with
respect to the Year 2000 date change and believes that if its own systems should
fail, the Company could convert to a manual entry

43
<PAGE>

system for a period of up to six months without significant losses. The Company
believes that any mission critical systems could be recovered and operating
within seven days. In the event that the Federal Reserve Bank of Dallas is
unable to handle electronic funds transfers, the Company does not expect the
impact to be material to its financial condition or results of operations as
long as the Company is able to utilize an alternative electronic funds transfer
source. As part of its contingency planning, the Company has reviewed its loan
customer base and the potential impact on capital of Year 2000 non-compliance.
Based upon such review, using what it considers to be a reasonable worst case
scenario, the Company has assumed that certain of its commercial borrowers whose
businesses are most likely to be affected by Year 2000 noncompliance would be
unable to repay their loans, resulting in charge-offs of loan amounts in excess
of collateral values. If such were the case, the Company believes that it is
unlikely that its exposure would exceed $300,000, although there are no
assurances that this amount will not be substantially higher. The Company does
not believe that this amount is material enough for the Company to adjust its
current methodology for making provisions to the allowance for credit losses. In
addition, the Company plans to maintain additional cash on hand to meet any
unusual deposit withdrawal activity.

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, 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

44
<PAGE>
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.

45
<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:
Total 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>

46
<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:
Total 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>

47
<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

48
<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

49
<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 $2.0 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 $340,000 or 17.2%, 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 loan 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
Accruing loans 90 days or more past due........... -- -- 182 4 54
Other real estate................................. 606 739 534 584 1,493
--------- --------- --------- --------- ---------
Total nonperforming assets.................... $ 3,269 $ 2,320 $ 1,980 $ 1,551 $ 2,748
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Nonperforming assets to total loans and other real
estate.......................................... 0.94% 0.82% 1.11% 1.23% 2.33%
Nonperforming assets to total assets.............. 0.65% 0.54% 0.61% 0.67% 1.44%
</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.

50
<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................................................ 134.02 135.42 111.48 130.71 107.17
</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.

51
<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>

52
<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.

53
<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.

54
<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

55
<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
Total 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>

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 EVE 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>

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.

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

56
<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 September 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
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>

57
<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 of the Company 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 in July 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

58
<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.

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.

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 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.

59
<PAGE>

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, 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 the Ex-Im Bank 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 Tai 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 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.

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

60
<PAGE>
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 previous year'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.

61
<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 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. Of the six founding directors of the Bank,
five individuals (Tommy F. Chen, May P. Chu, John Lee, David Tai and Don J.
Wang) continue to serve as directors of the Bank and the Company.

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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
by the Company's Compensation Committee 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 trading 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.

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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 ($7.68), minus
the exercise price ($2.71).

(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 September 30, 1998, all of such loans aggregated $3.4 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.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 1, 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% 6.91%
Siah Chin Leong(3)........................... 460,000 8.14 6.57
Leslie Looi Meng(4).......................... 385,992 6.83 5.51
Shou Chiun Ting(5)........................... 371,768 6.57 5.31

DIRECTORS AND EXECUTIVE OFFICERS
- ---------------------------------------------
Helen F. Chen................................ 555,784(6) 9.83 7.93
Tommy F. Chen................................ 170,700(7) 3.01 2.44
May P. Chu................................... 108,064(8) 1.90 1.54
Jane W. Kwan................................. 20,436 * *
William C.C. Kwan............................ 21,376 * *
John Lee..................................... 146,052(9) 2.58 2.09
David Tai.................................... 226,388(10) 3.99 3.23
Joe Ting..................................... 66,028(11) 1.17 *
Don J. Wang.................................. 507,780(12) 8.95 7.25
---------
Directors and Executive Officers as a Group
(11 persons)............................... 1,822,608 32.23 26.02
</TABLE>

- ---------

* Indicates ownership which does not exceed 1.0%

(1) Assumes the issuance of 1,350,000 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) Includes 484,128 shares held of record by Metro Investment Group, Inc. of
which Ms. Chen is the President.

(7) 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.

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<PAGE>

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

(9) 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.

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

(11) 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.

(12) 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.

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. Depending upon the circumstances, the Federal Reserve
Board could take the position that paying a dividend would constitute an unsafe
or unsound practice and prohibit such dividend payment.

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

66
<PAGE>
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 and
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 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 not otherwise permitted for bank holding
companies, 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. Prior approval of the Federal Reserve Board would not be required
for the redemption or purchase of equity securities for a bank holding company
that would be well capitalized both before and after such transaction, well
managed and not subject to unresolved supervisory issues.

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 against any bank holding company and its
institution affiliated party for, among other things, any violation of law or
regulation, of any cease and desist order, or written agreement with the Federal
Reserve Board, with fines ranging from $5,000 per day up to $1,000,000 per day
if such violation was conducted on a knowing and reckless basis, and those
activities caused a substantial loss to a depository institution.

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.

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<PAGE>

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 September 30, 1998, the Company's ratio of Tier 1 capital to
total risk-weighted assets was 8.94% and its ratio of total capital to total
risk-weighted assets was 10.19%. 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 September 30, 1998, the Company's leverage
ratio was 6.39%. 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 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

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<PAGE>
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.

RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND INSIDERS. Transactions
between the Bank and its nonbanking affiliates, including the Company, are
subject to Section 23A of the Federal Reserve Act. An affiliate of a bank is any
company or entity that controls, is controlled by or is under common control
with the bank. Currently, a subsidiary of a bank that is not also a depository
institution is not treated as an affiliate of the bank for purposes of Sections
23A and 23B, but the Federal Reserve Board has proposed treating any subsidiary
of a bank that is engaged in activities not permissible for bank holding
companies under the BHCA as an affiliate for purposes of Sections 23A and 23B.
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 depository institutions and their subsidiaries. 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. At September 30,

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<PAGE>

1998, the Bank's capital surplus exceeded 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, arising as a result of their status as
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 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 September
30, 1998, the Bank's ratio of Tier 1 capital to total risk-weighted assets was
8.94% and its ratio of total capital to total risk-weighted assets was 10.19%.
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. The OCC and the other federal banking regulators have proposed
amendments to their minimum capital regulations to provide that the minimum
leverage capital ratio for a depository institution that has been assigned the
highest composite rating of 1 under the Uniform Financial Institutions Rating
System will be 3.0% and that the minimum leverage capital ratio for any other
depository institution will be 4.0%, unless a higher leverage capital ratio is
warranted by the particular circumstances or risk profile of the depository
institution. As of September 30, 1998, the Bank's ratio of Tier 1 capital to
average total assets (leverage ratio) was 6.39%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation of the
Company--Capital Resources."

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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 authorize 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 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 assessment 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 0.122%
of deposits and the SAIF rate is 0.610% of deposits.

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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 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.

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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 possess 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.

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 the date of this Prospectus. 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).

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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 cumulativity, non-cumulativity or partial
cumulativity 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 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 or securities convertible into 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

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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 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-

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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 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.

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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 the Underwriter, the Underwriter has agreed to purchase from the
Company 1,350,000 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.

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 202,500 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

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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 makes 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 makes 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 (i) 30% of its average daily trading volume in
the Common Stock during a specified two month prior period, or (ii) 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 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.

The Common Stock has been approved for quotation on the Nasdaq/National
Market under the symbol MCBI.

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.

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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 but do contain a description of all of the material features of the
exhibits. 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 the exhibits thereto 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.

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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 December 31, 1997 and 1996 and September 30, 1998 (unaudited)............ F-3

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

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

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

Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for the Nine
Months Ended September 30, 1998 and 1997 (unaudited)..................................................... 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.

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 October 26, 1998)

F-2
<PAGE>
METROCORP BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks................................... $ 17,198 $ 17,979 $ 15,219
Federal funds sold and other temporary investments........ 8,273 13,239 14,774
----------- --------- ---------
Total cash and cash equivalents......................... 25,471 31,218 29,993
Investments available-for-sale.............................. 72,154 41,612 25,626
Investments held-to-maturity................................ 57,466 71,012 78,054
Loans, net.................................................. 379,301 345,341 278,456
Premises and equipment, net................................. 8,095 8,073 8,071
Accrued interest receivable................................. 3,098 3,141 2,817
Deferred income taxes....................................... 2,652 1,630 1,171
Due from customers on acceptances........................... 1,201 1,460 1,317
Other real estate and repossessed assets, net............... 575 606 739
Other assets................................................ 1,176 958 743
----------- --------- ---------
Total assets............................................ $ 551,189 $ 505,051 $ 426,987
----------- --------- ---------
----------- --------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 80,629 $ 74,590 $ 59,369
Interest-bearing.......................................... 398,986 371,269 321,920
----------- --------- ---------
Total deposits.......................................... 479,615 445,859 381,289
----------- --------- ---------
Federal funds purchased..................................... -- 5,000 5,000
Other borrowings............................................ 25,430 16,611 9,566
Accrued interest payable.................................... 1,005 1,036 924
Income taxes payable........................................ 1,086 1,066 --
Acceptances outstanding..................................... 2,405 1,460 1,317
Other liabilities........................................... 6,061 3,513 3,493
----------- --------- ---------
Total liabilities....................................... 515,602 474,545 401,589
----------- --------- ---------
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......................................... 16,103 12,003 7,835
Accumulated other comprehensive income.................... 981 808 395
Treasury stock, at cost (98,312 shares at December 31,
1997)................................................... -- (755) --
----------- --------- ---------
Total shareholders' equity.............................. 35,587 30,506 25,398
----------- --------- ---------
Total liabilities and shareholders' equity.............. $ 551,189 $ 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans.................................................... $ 28,934 $ 23,984 $ 33,028 $ 23,884 $ 15,876
Securities:
Taxable................................................ 4,535 4,585 6,161 6,103 5,837
Tax-exempt............................................. 718 726 968 817 779
Federal funds sold and other temporary investments....... 1,057 738 998 719 573
--------- --------- --------- --------- ---------
Total interest income................................ 35,244 30,033 41,155 31,523 23,065
--------- --------- --------- --------- ---------
Interest expense:
Time deposits............................................ 11,579 10,070 13,685 10,275 6,709
Demand and savings deposits.............................. 3,068 2,498 3,430 3,010 2,162
Other borrowings......................................... 413 704 1,023 642 769
--------- --------- --------- --------- ---------
Total interest expense............................... 15,060 13,272 18,138 13,927 9,640
--------- --------- --------- --------- ---------
Net interest income........................................ 20,184 16,761 23,017 17,596 13,425
Provision for loan losses.................................. 2,520 1,504 3,350 2,118 792
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses........ 17,664 15,257 19,667 15,478 12,633
--------- --------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts...................... 2,331 1,664 2,248 1,981 2,083
Other loan-related fees.................................. 1,061 1,035 1,440 972 428
Letters of credit commissions and fees................... 280 246 357 359 330
Gain on sale of investment securities, net............... -- 151 189 56 62
Other noninterest income................................. 201 113 157 78 --
--------- --------- --------- --------- ---------
Total noninterest income............................. 3,873 3,209 4,391 3,446 2,903
--------- --------- --------- --------- ---------
Noninterest expense:
Employee compensation and benefits....................... 7,197 6,488 8,940 8,048 5,932
Occupancy................................................ 3,573 2,823 3,843 3,330 1,965
Other real estate, net................................... 264 323 474 199 77
Data processing.......................................... 438 327 465 283 369
Professional fees........................................ 387 325 431 346 274
Advertising.............................................. 283 251 332 308 260
Other noninterest expense................................ 3,347 2,868 3,611 3,588 2,968
--------- --------- --------- --------- ---------
Total noninterest expense............................ 15,489 13,405 18,096 16,102 11,845
--------- --------- --------- --------- ---------
Income before provision for income taxes................... 6,048 5,061 5,962 2,822 3,691
Provision for income taxes................................. 1,948 1,527 1,794 809 1,091
--------- --------- --------- --------- ---------
Net income................................................. $ 4,100 $ 3,534 $ 4,168 $ 2,013 $ 2,600
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share:
Basic.................................................... $ 0.73 $ 0.63 $ .75 $ .38 $ .52
Diluted.................................................. $ 0.71 $ 0.63 $ .74 $ .37 $ .51
Weighted average shares outstanding:
Basic.................................................... 5,625 5,589 5,581 5,364 5,015
Diluted.................................................. 5,745 5,635 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 NINE MONTHS ENDED SEPTEMBER 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 income
(unaudited)........................ -- -- -- -- 173 -- 173
Net income (unaudited)............... -- -- -- 4,100 -- -- 4,100
----- --------- ----------- --------- ------ ----- ---------
Balance at September 30, 1998
(unaudited)........................ 5,655 $ 5,655 $ 12,848 $ 16,103 $ 981 $ -- $ 35,587
----- --------- ----------- --------- ------ ----- ---------
----- --------- ----------- --------- ------ ----- ---------
</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>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:--
Net income.................................................. $ 4,100 $ 3,607 $ 4,168 $ 2,013 $ 2,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................................. 1,538 1,245 1,689 1,391 646
Provision for loan losses................................. 2,153 1,504 3,350 2,118 792
Gain on securities sales, net............................. -- (203) (189) (56) (62)
Loss (gain) on sale of other real estate.................. 19 (12) (28) 35 (77)
Deferred income taxes..................................... (1,101) (1,414) (660) (361) (308)
Changes in:
Accrued interest receivable............................. 43 45 (324) (696) (421)
Other assets............................................ (561) (2,239) (253) 56 (491)
Accrued interest payable................................ (31) 56 112 115 328
Deferred loan fees...................................... 146 575 1,010 855 520
Other liabilities....................................... 2,548 (187) 20 891 1,284
Income taxes payable.................................... 20 1,620 1,066 (361) 361
---------- ---------- ---------- ----------- ----------
Net cash provided by operating activities............. 8,874 4,597 9,961 6,000 5,172
---------- ---------- ---------- ----------- ----------
Cash flows from investing activities:
Purchases of investments available-for-sale............... (36,649) (26,160) (26,212) (12,709) (10,137)
Proceeds from maturities of investments available-
for-sale................................................ 6,346 8,500 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........................................ 13,559 8,816 12,031 16,489 3,694
Net change in loans....................................... (36,259) (47,165) (73,591) (106,179) (52,870)
Proceeds from sales of other real estate.................. 355 370 2,539 138 597
Purchases of premises and equipment....................... (1,560) (1,158) (1,691) (3,411) (4,511)
---------- ---------- ---------- ----------- ----------
Net cash used by investing activities................... (54,208) (61,771) (80,878) (102,530) (73,325)
---------- ---------- ---------- ----------- ----------
Cash flows from financing activities:
Net change in:
Deposits.................................................. 33,756 51,224 64,570 96,136 88,018
Other borrowings.......................................... 10,023 14,226 7,045 293 (3,319)
Federal funds purchased................................... (5,000) (5,000) -- 5,000 --
Proceeds from issuance of common stock...................... -- 1,282 1,282 -- 1,157
Treasury stock sold/(purchased), net........................ 808 (755) (755) -- --
---------- ---------- ---------- ----------- ----------
Net cash provided by financing activities............... 39,587 60,977 72,142 101,429 85,856
---------- ---------- ---------- ----------- ----------
Net increase in cash and cash equivalents..................... (5,747) 3,803 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.................... $ 25,471 $ 33,796 $ 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

NINE MONTHS ENDED SEPTEMBER 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 September 30, 1998 and
for the nine months ended September 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 nine months ended September 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

NINE MONTHS ENDED SEPTEMBER 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 separate 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

NINE MONTHS ENDED SEPTEMBER 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

NINE MONTHS ENDED SEPTEMBER 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
$184,933,000, $192,918,000 and $162,158,000, at September 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

NINE MONTHS ENDED SEPTEMBER 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 September 30, 1998, December 31, 1997 and
1996, respectively, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
AS OF SEPTEMBER 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)............................................... $ 16,426 $ 272 $ (2) $ 16,696
Federal Home Loan Mortgage Corporation
(FHLMC)--MBS................................................... 12,908 189 -- 13,097
Government National Mortgage Association
(GNMA)--MBS.................................................... 12,623 291 -- 12,914
Municipal securities............................................. 7,370 296 -- 7,666
Small Business Administration (SBA)/Small Business Investment
Company (SBIC)................................................. 5,183 130 (37) 5,276
Federal Home Loan Bank (FHLB).................................... 2,956 45 -- 3,001
----------- ----------- --- ---------
$ 57,466 $ 1,223 $ (39) $ 58,650
----------- ----------- --- ---------
----------- ----------- --- ---------
Investments available-for-sale:
FHLMC-MBS........................................................ $ 16,787 $ 632 $ (5) $ 17,414
Municipal securities............................................. 10,301 616 -- 10,917
GNMA-MBS......................................................... 31,717 251 (47) 31,921
FHLB............................................................. 1,998 8 -- 2,006
U.S. Treasury Notes.............................................. 1,983 92 -- 2,075
FNMA-MBS......................................................... 4,158 30 -- 4,188
FHLB stock(1).................................................... 3,104 -- -- 3,104
Federal Reserve Bank stock(2).................................... 529 -- -- 529
----------- ----------- --- ---------
$ 70,577 $ 1,629 $ (52) $ 72,154
----------- ----------- --- ---------
----------- ----------- --- ---------
</TABLE>

F-12
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

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

NINE MONTHS ENDED SEPTEMBER 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
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------

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
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>

F-13
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

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

NINE MONTHS ENDED SEPTEMBER 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 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):

Investments carried at approximately $2,000,000, $3,568,000 and $1,028,000
in the available-for-sale portfolio at September 30, 1998, December 31, 1997 and
1996, respectively, were pledged to secure public deposits and short-term
borrowings of approximately $941,000, $1,359,000 and $766,000, respectively.
Additionally, investments in the available-for-sale portfolio carried at
approximately $12,000,000, $10,858,000 and $11,096,000 were pledged to secure
borrowed funds at September 30, 1998, December 31, 1997 and 1996, respectively.

F-14
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

2. SECURITIES --(CONTINUED)
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,
SEPTEMBER --------------------
30, 1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Commercial and industrial................... $ 238,790 $ 193,355 $ 133,564
Real estate-mortgage........................ 102,808 122,657 113,128
Real estate-construction.................... 26,712 21,609 17,639
Consumer and other.......................... 11,043 10,147 13,343
Factored receivables........................ 9,927 5,249 6,217
----------- --------- ---------
Gross loans............................... 389,280 353,017 283,891
Unearned discounts and interest............. (984) (980) (1,050)
Deferred loan fees.......................... (3,273) (3,127) (2,244)
----------- --------- ---------
Total loans............................... 385,023 348,910 280,597
Allowance for loan losses................... (5,722) (3,569) (2,141)
----------- --------- ---------
Loans, net.............................. $ 379,301 $ 345,341 $ 278,456
----------- --------- ---------
----------- --------- ---------
</TABLE>

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 September 30, 1998

F-15
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

3. LOANS AND ALLOWANCE FOR LOAN LOSSES --(CONTINUED)
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,
SEPTEMBER --------------------
30, 1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Hotels/motels............................... $ 57,640 $ 52,221 $ 30,589
Retail centers.............................. 46,123 30,076 34,724
Restaurants................................. 20,613 27,613 17,910
Apartment buildings......................... 15,515 23,972 22,327
Convenience/gasoline stations............... 9,703 11,022 8,320
Grocery stores.............................. 3,312 9,962 10,536
All other................................... 236,374 198,151 159,485
----------- --------- ---------
Gross loans............................. $ 389,280 $ 353,017 $ 283,891
----------- --------- ---------
----------- --------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
AS OF
---------------------------------
DECEMBER 31,
SEPTEMBER --------------------
30, 1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Variable rate loans......................... $ 315,925 $ 281,416 $ 230,640
Fixed rate loans............................ 73,355 71,601 53,251
----------- --------- ---------
$ 389,280 $ 353,017 $ 283,891
----------- --------- ---------
----------- --------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
SEPTEMBER 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.......................... 2,520 1,504 3,350 2,118 792
Charge-offs........................................ (496) (712) (2,223) (1,806) (699)
Recoveries......................................... 129 171 301 217 255
--------- --------- --------- --------- ---------
Balance at end of period......................... $ 5,722 $ 3,104 $ 3,569 $ 2,141 $ 1,612
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

Loans for which the accrual of interest has been discontinued totaled
approximately $2,705,000, $2,663,000 and $1,581,000 at September 30, 1998,
December 31, 1997 and 1996, respectively. Had these loans remained on an accrual
basis, interest in the amount of approximately $125,000, $62,000 and $84,000
would have been accrued on these loans during the nine months ended September
30, 1998 and the years ended December 31, 1997 and 1996, respectively.

F-16
<PAGE>
METROCORP BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

3. LOANS AND ALLOWANCE FOR LOAN LOSSES --(CONTINUED)

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 September 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>
SEPTEMBER 30, 1998
Impaired loans having related allowance for loan
losses............................................ $ 4,485 $ 14,305 $ 128 $ 18,918
Less: Allowance for loan losses................... (228) (1,142) (35) (1,405)
Less: Guaranteed portion (SBA and Overseas Chinese
Credit Guarantee Fund (OCCGF)).................. -- (3,609) -- (3,609)
----------- ----------- ----- ---------
Impaired loans, net of allowance for loan
losses and guarantees....................... $ 4,257 $ 9,554 $ 93 $ 13,904
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</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 nine months ended September 30, 1998 and the years ended December
31, 1997 and 1996, the average recorded investment in impaired loans was
approximately $14,180,000, $8,236,000 and $3,825,000, respectively. The related
amount of interest income recognized while the loans were impaired approximated
$851,000, $526,000 and $119,000 for the nine months ended September 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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

4. PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
AS OF
ESTIMATED ---------------------------------
USEFUL SEPTEMBER DECEMBER 31,
LIVES (IN 30, --------------------
YEARS) 1998 1997 1996
--------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture, fixtures and equipment.............. 3 - 10 $ 7,777 $ 6,999 $ 6,063
Building and improvements...................... 3 - 20 3,892 3,638 3,085
Land........................................... -- 1,679 1,679 1,679
Leasehold improvements......................... 5 1,910 1,426 1,224
----------- --------- ---------
$ 15,258 13,742 12,051
Accumulated depreciation....................... (7,163) (5,669) (3,980)
----------- --------- ---------
Premises and equipment, net................ $ 8,095 $ 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
---------------------------------
SEPTEMBER DECEMBER 31,
30, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Interest-bearing demand deposits............................ $ 91,806 $ 86,787 $ 74,655
Savings and money market accounts........................... 29,245 26,028 22,937
Time deposits less than $100,000............................ 145,833 149,567 130,056
Time deposits $100,000 and over............................. 132,102 108,887 94,272
----------- --------- ---------
Interest-bearing deposits................................... $ 398,986 $ 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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

6. OTHER BORROWINGS

During the third quarter of 1998, the Company obtained two ten-year loans
totaling $25.0 million from the FHLB of Dallas to further leverage its balance
sheet. The loans bear interest at the average rate of 5.0% per annum until the
fifth anniversary of the loans, at which time the loans may be repaid or the
interest rate may be renegotiated. 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 September 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,
SEPTEMBER 30, --------------------
1998 1997 1996
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for loan losses....................................... $ 1,468 $ 700 $ 263
Recognition of deferred loan fees............................... 1,188 1,063 722
Depreciation.................................................... 488 357 208
Recognition of interest on nonaccrual loans..................... 118 118 107
Other........................................................... 54 40 184
------ --------- ---------
Gross deferred tax assets....................................... 3,316 2,278 1,484
------ --------- ---------
Unrealized gains on investments available-for-sale, net......... 528 449 248
FHLB stock dividends............................................ 136 199 65
------ --------- ---------
Gross deferred tax liability.................................... 664 648 313
------ --------- ---------
Net deferred tax asset...................................... $ 2,652 $ 1,630 $ 1,171
------ --------- ---------
------ --------- ---------
</TABLE>

The Bank has provided no valuation allowance for the net deferred tax asset
at September 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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current provision for federal income taxes......... $ 3,049 $ 2,941 $ 2,454 $ 1,170 $ 1,399
Deferred federal income tax benefit................ (1,101) (1,414) (660) (361) (308)
--------- --------- --------- --------- ---------
Total provision for income taxes................. $ 1,948 $ 1,527 $ 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>
NINE MONTHS ENDED
SEPTEMBER 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....................................... $2,190 35% $1,721 34% $2,027 34% $ 960 34% $1,255 34%
Tax-exempt interest income................... (244) (4) (247) (5) (329) (6) (278) (10) (265) (7)
Other, net................................... 2 -- 53 1 96 2 127 5 101 3
------ --- ------ --- ------ --- ------ --- ------ ---
Provision for income taxes............... $1,948 31% $1,527 30% $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>
NINE MONTHS ENDED
YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ---------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- ----- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unrealized gains (losses) arising during the period....... $ (88) $ (256) $ (277) $ 36 $ (608)
Less: reclassification adjustment for gains realized in
net income.............................................. -- 51 64 33 7
--- --------- --------- --- ---------
Other comprehensive income................................ $ (88) $ (205) $ (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

NINE MONTHS ENDED SEPTEMBER 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 $171,000 and $169,000 during the nine months ended
September 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 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

NINE MONTHS ENDED SEPTEMBER 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
September 30, 1998 and December 31, 1997, approximately $10.4 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 September 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

NINE MONTHS ENDED SEPTEMBER 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 September 30, 1998 (unaudited):
Total capital (to risk weighted greater than or greater than or
assets)............................... $39,455 10.2% equal to $30,965 8.0% equal to $38,706 10.0%
Tier 1 capital (to risk weighted greater than or greater than or
assets)............................... 34,606 8.9% equal to 15,482 4.0% equal to 23,224 6.0%
greater than or greater than or
Leverage ratio.......................... 34,606 6.4% equal to 11,612 3.0% equal to 19,353 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 8.5% 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 greater than or
Leverage ratio.......................... 25,004 6.0% equal to 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 September 30,
1998, December 31, 1997 and December 31, 1996 aggregated approximately
$94,156,000, $57,924,000 and $48,789,000, respectively. Commitments under
letters of credit at September 30, 1998, December 31, 1997 and December 31, 1996
totaled $4,597,000, $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

NINE MONTHS ENDED SEPTEMBER 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

NINE MONTHS ENDED SEPTEMBER 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 $507,000, $558,000 and $507,000 for the nine months ended
September 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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

15. RELATED PARTY TRANSACTIONS --(CONTINUED)

comparable transactions with unrelated parties. At September 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 $3,396,000,
$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 September 30, 1998, December 31, 1997 and 1996, the Bank
held demand and other deposits for related parties of approximately $2,245,000,
$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>
NINE MONTHS ENDED
SEPTEMBER 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..................... $ 4,100 $ 3,534 $ 4,168 $ 2,013 $ 2,600
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Weighted average common shares in basic EPS......... 5,625 5,589 5,581 5,364 5,015
Effects of dilutive securities: Options............. 120 46 35 80 89
--------- --------- --------- --------- ---------
Weighted average common and potentially diluted
common shares used in dilutive EPS................ 5,745 5,635 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

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)

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

18. SUBSEQUENT EVENTS

Effective October 26, 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..................................... 57
Principal Shareholders......................... 65
Supervision and Regulation..................... 66
Description of Securities of the Company....... 73
Underwriting................................... 77
Legal Matters.................................. 78
Experts........................................ 78
Available Information.......................... 79
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.

1,350,000 SHARES

[LOGO]

COMMON STOCK

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

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

LEGG MASON WOOD WALKER
INCORPORATED

, 1998

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

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............... $ 6,514
National Association of Securities Dealers, Inc. filing fee....... $ 2,700
Printing and engraving expenses................................... $ 100,000
Legal fees and expenses of counsel for the Registrant............. $ 100,000
Accounting fees and expenses...................................... $ 230,000
Transfer Agent fees............................................... $ 5,000
Miscellaneous..................................................... $ 5,786
---------
Total............................................................. $ 450,000
---------
---------
</TABLE>

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 Registrant, whether or not
Registrant would have the power to indemnify such person against such liability,
as permitted by law.

II-1
<PAGE>
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 October 26, 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 October 26, 1998 the
consideration for each sale was cash. Except for the shares issued on October
26, 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 October 26, 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 October 26, 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.

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.
</TABLE>

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

<TABLE>
<C> <S>
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>

- ---------

* Previously provided.

(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 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-3
<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 December 2, 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 December 2, 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/ JOHN LEE
------------------------------------------- Director
John Lee

/s/ DAVID TAI
------------------------------------------- Director
David Tai

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

II-4
<PAGE>
INDEX TO EXHIBITS

<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>

- ---------

* Previously filed.

<PAGE>

===============================================================================

METROCORP BANCSHARES, INC.

(A TEXAS CORPORATION)

1,350,000 Shares of Common Stock (*)

UNDERWRITING AGREEMENT

____________, 1998

===============================================================================

- ------------
(*)Plus an option to purchase from the Company up to 202,500 additional shares.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
SECTION 1. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . .-2-
(a) Representations and Warranties by the Company. . . . . . . . .-2-
(i) Compliance with Registration Requirements . . .-2-
(ii) Independent Accountants . . . . . . . . . . . .-2-
(iii) Financial Statements. . . . . . . . . . . . . .-2-
(iv) No Material Adverse Change in Business. . . . .-3-
(v) Good Standing of the Company. . . . . . . . . .-3-
(vi) Good Standing of Subsidiaries . . . . . . . . .-3-
(vii) Capitalization. . . . . . . . . . . . . . . . .-3-
(viii) Authorization of Agreement. . . . . . . . . . .-3-
(ix) Authorization and Description of Securities . .-3-
(x) Absence of Defaults and Conflicts . . . . . . .-4-
(xi) Absence of Labor Dispute. . . . . . . . . . . .-4-
(xii) Absence of Proceedings. . . . . . . . . . . . .-4-
(xiii) Accuracy of Exhibits. . . . . . . . . . . . . .-4-
(xiv) Possession of Intellectual Property . . . . . .-4-
(xv) Absence of Further Requirements . . . . . . . .-5-
(xvi) Possession of Licenses and Permits. . . . . . .-5-
(xvii) Compliance with Applicable Laws . . . . . . . .-5-
(xviii) Title to Property . . . . . . . . . . . . . . .-5-
(xix) Warrants, Options and Other Rights. . . . . . .-5-
(xx) Compliance with Cuba Act. . . . . . . . . . . .-5-
(xxi) Investment Company Ac . . . . . . . . . . . . .-5-
(xxii) Environmental Laws. . . . . . . . . . . . . . .-6-
(xxiii) Registration Rights . . . . . . . . . . . . . .-6-
(xxiv) Tax Matters . . . . . . . . . . . . . . . . . .-6-
(xxv) Insurance . . . . . . . . . . . . . . . . . . .-6-
(xxvi) Accounting Controls . . . . . . . . . . . . . .-6-
(xxvii) Fees. . . . . . . . . . . . . . . . . . . . . .-6-
(xxviii) Lock-up Agreements. . . . . . . . . . . . . . .-6-
(xxix) Use of Prospectus . . . . . . . . . . . . . . .-7-
SECTION 2. SALE AND DELIVERY TO UNDERWRITER; CLOSING. . . . . . . . . . .-7-
(a) Initial Securities . . . . . . . . . . . . . . . . . . . . . .-7-
(b) Option Securities. . . . . . . . . . . . . . . . . . . . . . .-7-
(c) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . .-7-
(d) Denominations; Registration. . . . . . . . . . . . . . . . . .-8-
SECTION 3. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . .-8-
(a) Compliance with Securities Regulations and Commission
Requests . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
(b) Filing of Amendments . . . . . . . . . . . . . . . . . . . . .-8-
(c) Delivery of Registration Statements. . . . . . . . . . . . . .-8-
(d) Delivery of Prospectuses . . . . . . . . . . . . . . . . . . .-9-
(e) Continued Compliance with Securities Laws. . . . . . . . . . .-9-
(f) Blue Sky Qualifications. . . . . . . . . . . . . . . . . . . .-9-
(g) Rule 158 . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
(h) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . .-9-
(i) Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-

<PAGE>
(j) Restriction on Sale of Securities. . . . . . . . . . . . . . .-9-
(k) Reporting Requirements . . . . . . . . . . . . . . . . . . . -10-
(l) Compliance with Cuba Act . . . . . . . . . . . . . . . . . . -10-
SECTION 4. PAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . -10-
(b) Termination of Agreement . . . . . . . . . . . . . . . . . . -10-
(c) Allocation of Expenses . . . . . . . . . . . . . . . . . . . -10-
SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. . . . . . . . . . . -10-
(a) Effectiveness of Registration Statement. . . . . . . . . . . -10-
(b) Opinion of Counsel for Company . . . . . . . . . . . . . . . -11-
(c) Opinion of Counsel for Underwriter . . . . . . . . . . . . . -11-
(d) Officers' Certificate. . . . . . . . . . . . . . . . . . . . -11-
(e) Accountant's Comfort Letter. . . . . . . . . . . . . . . . . -11-
(f) Bring-down Comfort Letter. . . . . . . . . . . . . . . . . . -11-
(g) Approval of Listing. . . . . . . . . . . . . . . . . . . . . -11-
(h) No Objection . . . . . . . . . . . . . . . . . . . . . . . . -11-
(i) Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . -11-
(j) Conditions to Purchase of Option Securities. . . . . . . . . -11-
(i) Officers' Certificate . . . . . . . . . . . . -11-
(ii) Opinion of Counsel of the Company . . . . . . -12-
(iii) Opinion of Counsel for the Underwriter. . . . -12-
(iv) Bring-down Comfort Letter . . . . . . . . . . -12-
(k) Additional Documents . . . . . . . . . . . . . . . . . . . . -12-
(l) Termination of Agreement . . . . . . . . . . . . . . . . . . -12-
SECTION 6. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . -12-
(a) Indemnification of the Underwriter . . . . . . . . . . . . . -12-
(b) Indemnification of Company, Directors and Officers . . . . . -13-
(c) Actions against Parties; Notification. . . . . . . . . . . . -13-
(d) Settlement without Consent if Failure to Reimburse . . . . . -13-
SECTION 7. CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 9. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . -14-
(a) Termination; General . . . . . . . . . . . . . . . . . . . . -14-
(b) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 10. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 11. PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 12. GOVERNING LAW AND TIME . . . . . . . . . . . . . . . . . . . -16-
SECTION 13. EFFECT OF HEADINGS . . . . . . . . . . . . . . . . . . . . . -16-

SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch A-1
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch B-1
SCHEDULE C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sch C-1
Exhibit A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Exhibit B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
Exhibit C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-1
</TABLE>

-ii-
<PAGE>

METROCORP BANCSHARES, INC.

(a Texas corporation)

1,350,000 Shares of Common Stock

(Par Value $1.00 Per Share)

UNDERWRITING AGREEMENT

_________________, 1998

LEGG MASON WOOD WALKER, INCORPORATED
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Ladies and Gentlemen:

MetroCorp Bancshares, Inc., a Texas corporation (the "Company"), confirms
its agreement with Legg Mason Wood Walker, Incorporated (the "Underwriter"),
with respect to (i) the sale by the Company and the purchase by the Underwriter
of 1,350,000 shares of Common Stock, par value $1.00 per share, of the Company
("Common Stock") and (ii) the grant by the Company to the Underwriter of the
option described in Section 2(b) hereof to purchase all or any part of 202,500
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 1,350,000 shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the 202,500 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."

The Company understands that the Underwriter proposes to make a public
offering of the Securities as soon as it deems advisable after this Agreement
has been executed and delivered.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-62667) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the

<PAGE>

Rule 434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to the Underwriter for use in
connection with the offering of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to
the preliminary prospectus dated ______, 1998 together with the Term Sheet
and all references in this Agreement to the date of the Prospectus shall mean
the date of the Term Sheet. For purposes of this Agreement, all references to
the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").

Section 1. REPRESENTATIONS AND WARRANTIES.

(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to the Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with the Underwriter, as follows:

(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.

At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not

-2-

<PAGE>

misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
The representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to
the Company in writing by the Underwriter expressly for use in the
Registration Statement or Prospectus.

Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectus delivered to the Underwriter for use in connection with this
offering was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.

(iii) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the results of
operations, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; and said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected consolidated financial data and the
summary consolidated financial data included in the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement.

(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.

-3-

<PAGE>

(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Texas and has the corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure or failures so to qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Effect;
and the Company is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended.

(vi) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the Company
(each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure or failures so to qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement, all of the
issued and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any Subsidiary
was issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. The only subsidiaries of the Company
are the subsidiaries listed on SCHEDULE A hereto. Except for the shares of
capital stock of the Subsidiaries owned by the Company and such
Subsidiaries, neither the Company nor the Subsidiaries owns any shares of
stock or any other equity securities of any corporation or has any equity
interest in any firm, partnership, association or other entity, except as
described in the Prospectus.

(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus). The shares of issued and outstanding
capital stock have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital stock
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.

(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.

-4-

<PAGE>

(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities to
be purchased by the Underwriter from the Company have been duly authorized
for issuance and sale to the Underwriter pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued and
fully paid and non-assessable; the Common Stock conforms to all statements
relating thereto contained in the Prospectus and such description conforms
to the rights set forth in the instruments defining the same; no holder of
the Securities will be subject to personal liability by reason of being
such a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.

(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any
of its Subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (collectively, the "Agreements and
Instruments") except for such defaults that would not, individually or in
the aggregate, result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or a default or Repayment Event (as defined below) under, give rise to any
right of termination under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any Subsidiary pursuant to, any of the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or encumbrances
that would not, individually or in the aggregate, result in a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Subsidiary or
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of
their assets, properties or operations. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
Subsidiary.

(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of
the Company or any Subsidiary exists or, to the knowledge of the Company,
is threatened.

-5-

<PAGE>

(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any Subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which would reasonably be
expected to result in a Material Adverse Effect, or which would reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which the
Company or any Subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the business, could not reasonably be expected to result in a Material
Adverse Effect.

(xiii) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described or filed as required.

(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") material to the business of the
Company and its subsidiaries now operated by them, and neither the Company
nor any of its Subsidiaries has received any written notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
individually or in the aggregate, would result in a Material Adverse
Effect.

(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.

(xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such certificates, authorities, permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them; the Company and its Subsidiaries are in compliance with
the terms and conditions of all such

-6-

<PAGE>

Governmental Licenses, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect, except
when the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.

(xvii) COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in the
Prospectus, the Company and each of its Subsidiaries is in compliance in
all material respects with all applicable laws, statutes, ordinances, rules
or regulations, the violation of which, individually or in the aggregate,
would be reasonably expected to have a Material Adverse Effect.

(xviii) TITLE TO PROPERTY. Each of the Company and each of its
Subsidiaries has good and marketable title to all properties (real and
personal) owned by the Company or its Subsidiaries, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the Prospectus
or (b) do not, individually or in the aggregate, materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company or any of its Subsidiaries; and
all of the leases and subleases material to the business of the Company and
its Subsidiaries, considered as one enterprise, and under which the Company
or any of its Subsidiaries holds properties described in the Prospectus,
are in full force and effect, and neither the Company nor any Subsidiary
has any written notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any Subsidiary
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.

(xix) WARRANTS, OPTIONS AND OTHER RIGHTS. Except as disclosed in
the Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any of its
Subsidiaries or any security convertible into or exchangeable for capital
stock of the Company or any of its Subsidiaries.

(xx) COMPLIANCE WITH CUBA ACT. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and regulations
thereunder (collectively, the "Cuba Act") or is exempt therefrom.

(xxi) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by

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<PAGE>

a "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").

(xxii) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, individually or in the aggregate, result
in a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C)
there are no pending or, to the best knowledge of the Company, threatened,
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its Subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.

(xxiii) REGISTRATION RIGHTS. There are no persons with registration
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act.

(xxiv) TAX MATTERS. The Company and its Subsidiaries have timely
filed all federal, state, local and foreign tax returns that are required
to be filed or have duly requested extensions thereof and have timely paid
all taxes required to be paid by any of them and any related assessments,
fines or penalties, except for any such tax, assessment, fine or penalty
that is being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iii) above in respect of
all federal, state, local and foreign taxes for all periods as to which the
tax liability of the Company or any of its Subsidiaries has not been
finally determined or remains open to examination by applicable taxing
authorities.

(xxv) INSURANCE. The Company and its Subsidiaries carry or are
entitled to the benefits of insurance in such amounts and covering such
risks as is generally maintained by companies of established repute engaged
in the same or similar business, and all such insurance is in full force
and effect.

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<PAGE>

(xxvi) ACCOUNTING CONTROLS. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general and specific authorizations; (ii) transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorizations; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(xxvii) FEES. Other than as contemplated by this Agreement, there
is no broker, finder or other party that is entitled to receive from the
Company or any of its Subsidiaries any brokerage or finder's fee or any
other fee, commission or payment as a result of the transactions
contemplated by this Agreement.

(xxviii) LOCK-UP AGREEMENTS. The Company has obtained and delivered
to the Underwriter the agreements of the persons and entities named in
SCHEDULE B hereto to the effect that each such person and entity will not,
for a period of 180 days from the date hereof and except as otherwise
provided therein, without the prior written consent of the Underwriter
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise dispose of
or transfer any shares of the Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock or file or cause to be
filed any registration statement under the 1933 Act with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise; provided, however, that such restrictions
shall not apply to a bona fide gift of shares of Common Stock by such
person to a person or entity who, prior to such transfer, shall have
executed and delivered to the Underwriter an agreement, substantially in
the form of the agreement contemplated by this Section 1(a)(xxviii), not to
take any action prohibited by such agreement with respect to such shares of
Common Stock.

(xxix) USE OF PROSPECTUS. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion of
the distribution of the Securities, will not distribute any prospectus (as
such term is defined in the 1933 Act and the 1933 Act Regulations) in
connection with the offering and sale of the Securities other than the
Registration Statement, any preliminary prospectus, the Prospectus or other
materials, if any, permitted by the 1933 Act or by the 1933 Act Regulations
and approved by the Representative.

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<PAGE>

Section 2. SALE AND DELIVERY TO THE UNDERWRITER; CLOSING.

(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter and the Underwriter agrees
to purchase from the Company 1,350,000 shares of the Securities at the price per
share set forth in SCHEDULE C.

(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriter to purchase,
in addition to the Initial Securities, 202,500 shares of the Option Securities
at the price per share set forth in SCHEDULE C, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The options hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Underwriter to the Company setting forth
the aggregate number of Option Securities as to which the Underwriter is then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Underwriter, but shall not be later than seven full
business days after the exercise of said options, nor in any event prior to the
Closing Time, as hereinafter defined.

(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Thacher
Proffitt & Wood, 1700 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C.
20006, or at such other place as shall be agreed upon by the Underwriter and
the Company at 10:00 A.M. (Eastern time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof or such other time not later than ten business days after such date
as shall be agreed upon by the Underwriter and the Company (such time and date
of payment and delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Underwriter and
the Company on each Date of Delivery as specified in the notice from the
Underwriter to the Company.

Payment shall be made to the Company by wire transfer of immediately
available funds to bank accounts designated by the Company as the case may be,
against delivery to the Underwriter of certificates for the Securities to be
purchased.

(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Underwriter may request in writing at least one full
business day before the Closing Time or the relevant Date

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<PAGE>

of Delivery, as the case may be. The certificates for the Initial Securities
and the Option Securities, if any, will be made available for examination and
packaging by the Underwriter in The City of Washington not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.

Section 3. COVENANTS OF THE COMPANY. The Company covenants with the
Underwriter as follows:

(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Underwriter immediately, and
confirm such notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as shall be
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.

(b) FILING OF AMENDMENTS. The Company will give the Underwriter notice of
its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus included in the Registration
Statement at the time it became effective or to the Prospectus, will furnish the
Representative with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representative or counsel for the Underwriter
shall object.

(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Underwriter and counsel for the Underwriter, without charge,
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Underwriter, without charge, a conformed
copy of the Registration Statement as originally filed and of each amendment
thereto (without exhibits). The copies of the Registration Statement and each
amendment thereto furnished to the Underwriter will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.

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<PAGE>

(d) DELIVERY OF PROSPECTUSES. The Company has delivered to Underwriter,
without charge, as many copies of each preliminary prospectus as such
Underwriter reasonably requested, and the Company hereby consents to the use of
such copies for purposes permitted by the 1933 Act. The Company will furnish to
Underwriter, without charge, during the period when the Prospectus is required
to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the
"1934 Act"), such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request. The Prospectus and
any amendments or supplements thereto furnished to the Underwriter will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriter or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriter such number of copies of such amendment or supplement as the
Underwriter may reasonably request.

(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Underwriter, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Underwriter may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.

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<PAGE>

(g) RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.

(h) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."

(i) LISTING. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices required
by the Nasdaq National Market of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.

(j) RESTRICTION ON SALE OF SECURITIES. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of the Underwriter, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock or file or cause to be filed any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities,
in cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder, (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus,
(C) any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company referred
to in the Prospectus or (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan.

(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to
the 1934 Act within the time periods required by the 1934 Act and the rules
and regulations of the Commission thereunder.

(l) COMPLIANCE WITH CUBA ACT. In accordance with the Cuba Act and
without limitation to the provisions of Sections 6 and 7 hereof, the Company
agrees to indemnify and hold harmless the Underwriter from and against any
and all loss, liability, claim, damage and expense whatsoever (including fees
and disbursements of counsel), as incurred, arising out of any violation by
the Company of the Cuba Act.

SECTION 4. PAYMENT OF EXPENSES. (a) The Company will pay or cause to be
paid all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation,
printing and delivery to the

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Underwriter of this Agreement and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates
for the Securities to the Underwriter, including any stock or other transfer
taxes and any stamp, capital or other duties payable upon the sale, issuance
or delivery of the Securities to the Underwriter, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with
the provisions of Section 3(f) hereof, including filing fees and the fees and
disbursements of counsel for the Underwriter in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriter of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and
delivery to the Underwriter of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities, (ix) the filing fees incident to, and the fees
and disbursements of counsel to the Underwriter in connection with, the
review by the National Association of Securities Dealers, Inc. (the "NASD")
of the terms of the sale of the Securities and (x) the fees and expenses
incurred in connection with the inclusion of the Securities in the Nasdaq
National Market.

(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 (i) or, Section
9(a)(i) hereof, the Company shall reimburse the Underwriter for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter.

(c) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect and, as between the Underwriter, on the one hand, and the Company on
the other hand, shall not be affected by, any agreement that the Company may
make for the sharing of such costs and expenses.

SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 1 hereof or in certificates of
any officer of the Company or any Subsidiary of the Company delivered
pursuant to the provisions hereof, to the performance by the Company of its
respective covenants and other obligations hereunder, and to the following
further conditions:

(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, shall have
become effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by the Commission,
and any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel to
the Underwriter. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).

(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the Underwriter
shall have received the favorable opinion, dated as of Closing Time, of
Bracewell & Patterson, L.L.P., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter.

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<PAGE>

(c) OPINION OF COUNSEL FOR THE UNDERWRITER. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Thacher Proffitt & Wood, counsel for the Underwriter in form and
substance satisfactory to counsel for the Company.

(d) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
Underwriter shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of Closing Time, (iii) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or are contemplated by the Commission.

(e) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Underwriter shall have received from PricewaterhouseCoopers
LLP a letter dated such date, in form and substance satisfactory to the
Underwriter containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.

(f) BRING-DOWN COMFORT LETTER. At Closing Time, the Underwriter shall
have received from Pricewaterhouse Coopers LLP a letter, dated as of Closing
Time, in form and substance satisfactory to the Underwriter, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.

(g) APPROVAL OF LISTING. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.

(h) NO OBJECTION. The NASD shall have confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.

(i) LOCK-UP AGREEMENTS. At the date of this Agreement, the Underwriter
shall have received an agreement substantially in the form of EXHIBIT C
hereto signed by the persons listed on SCHEDULE B hereto.

(j) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the
Underwriter exercises its option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company, any Subsidiary of the Company shall be
true and correct as

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<PAGE>

of each Date of Delivery and, at the relevant Date of Delivery, and the
Underwriter shall have received:

(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.

(ii) OPINION OF COUNSEL OF THE COMPANY. The favorable opinion of
Bracewell & Patterson, L.L.P., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriter, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(b) hereof.

(iii) OPINION OF COUNSEL FOR THE UNDERWRITER. The favorable
opinion of Thacher Proffitt & Wood, counsel for the Underwriter, dated such
Date of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(c) hereof.

(iv) BRING-DOWN COMFORT LETTER. A letter from PricewaterhouseCoopers
LLP in form and substance satisfactory to the Underwriter and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Underwriter pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.

(k) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery
counsel for the Underwriter shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon
the issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance
to the Underwriter and counsel for the Underwriter.

(l) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of the
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the Underwriter to purchase the relevant Option Securities,
may be terminated by the Underwriter by notice to the Company at any time at
or prior to the Closing Time or such Date of Delivery, as the case may be,
and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 3(m), 6, 7
and 8 shall survive any such termination and remain in full force and effect.

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SECTION 6. INDEMNIFICATION.

(a) INDEMNIFICATION OF THE UNDERWRITER. The Company agrees to
indemnify and hold harmless the Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:

(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they
were made not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;

(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and

(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Underwriter), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i) or (ii) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or expense
to the extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Underwriter expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto).

(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Underwriter
agrees to indemnify and hold harmless the Company, its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any

-17-
<PAGE>

amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).

(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a) above, counsel to the indemnified parties shall be selected by
the Underwriter, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.

SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute
to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriter on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i)

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<PAGE>

is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Underwriter
on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the
Underwriter on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriter,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet bear to the aggregate
initial public offering price of the Securities as set forth on such cover.

The relative fault of the Company on the one hand and the Underwriter on
the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriter and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, Underwriter shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company.

-19-
<PAGE>

SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or
in certificates of officers of the Company or any of its Subsidiaries
submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of Underwriter
or controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the Underwriter.

SECTION 9. TERMINATION OF AGREEMENT.

(a) TERMINATION; GENERAL. The Underwriter may terminate this
Agreement, by notice to the Company at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Underwriter, impracticable to market the Securities or
to enforce contracts for the sale of the Securities, or (iii) if trading in
any securities of the Company has been suspended or limited by the Commission
or the Nasdaq National Market, or if trading generally on the American Stock
Exchange or the New York Stock Exchange or in the Nasdaq National Market has
been suspended or limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the NASD or any
other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal, New York or Texas authorities.

(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 3(m), 6, 7 and 8 shall survive such termination and remain in
full force and effect.

SECTION 10. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to Legg Mason Wood Walker, Incorporated, 1747
Pennsylvania Avenue, N.W., Washington, D.C. 20006, attention of Mark C.
Micklem with a copy to Richard A. Schaberg, Thacher Proffitt & Wood, 1700
Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20006 and notices to
the Company shall be directed to it at MetroCorp Bancshares, Inc., 9600
Bellaire Blvd., Suite 252, Houston, TX 77036, attention of Don J. Wang with a
copy to William T. Luedke, Bracewell & Patterson LLP, 2900 Pennzoil Place,
Houston, TX 77002.

SECTION 11. PARTIES. This Agreement shall each inure to the benefit of and
be binding upon the Underwriter, the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the

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<PAGE>

Underwriter, the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representative, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be
for the sole and exclusive benefit of the Underwriter and the Company and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representative, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.

SECTION 12. GOVERNING LAW AND TIME. This agreement shall be governed by and
construed in accordance with the laws of the State of_____________. except as
otherwise set forth herein, specified times of day refer to ______________
time.

Section 13. EFFECT OF HEADINGS. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.

If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Underwriter and the Company in accordance with its terms.

Very truly yours,

METROCORP BANCSHARES, INC.

By:
------------------------
Title:

CONFIRMED AND ACCEPTED,
as of the date first above written:

LEGG MASON WOOD WALKER, INCORPORATED

By:
---------------------------------
Title:

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<PAGE>

SCHEDULE A

[List of Subsidiaries]

Schedule A-1
<PAGE>

SCHEDULE B

List of Shareholders with ownership of 2% or more

Schedule B-1
<PAGE>

SCHEDULE C

MetroCorp Bancshares, Inc.
1,350,000 Shares of Common Stock
(Par Value $1.00 Per Share)

1. The initial public offering price per share for the Securities, determined
as provided in said Section 2, shall be $_________________.

2. The purchase price per share for the Securities to be paid by the
Underwriter shall be $______, being an amount equal to the initial public
offering price set forth above less $____ per share; provided that the
purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not
payable on the Option Securities.

Schedule C-1
<PAGE>

SUBSIDIARIES OF THE REGISTRANT

EXHIBIT A

Exh. A-1
<PAGE>

CONSENT OF PRICEWATERHOUSE COOPERS LLP

Exh. B-1
<PAGE>

FORM OF LOCK-UP AGREEMENT

Exh. C-1

<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

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<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.

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<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.

-7-
<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 current Board of Directors shall consist of nine (9) members who shall
serve as directors until the next 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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<PAGE>

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

William C. C. Kwan 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

-9-

<PAGE>
Shares
Number

[LOGO]
C
COMMON STOCK

CUSIP 591650 10 6
SEE REVERSE FOR CERTAIN
DEFINITIONS

THIS CERTIFIES THAT

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE,
OF

METROCORP BANCSHARES, INC., transferable on the books of the Corporation
by the holder hereof, in person or by duly authorized attorney, upon
surrender of this Certificate properly
endorsed or accompanied by a proper assignment. This Certificate is not
valid until countersigned and registered by the Transfer Agent and
Registrar.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed in facsimile by its duly authorized officers and the facsimile corporate
seal to be duly affixed hereto.

DATED:

[LOGO]
<TABLE>
<S> <C>
PRESIDENT SECRETARY
</TABLE>
<PAGE>
METROCORP BANCSHARES, INC.

The corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ..............Custodian ...........

as tenants by the
TEN ENT -- entireties (Cust) (Minor)
JT TEN -- as joint tenants with under Uniform Gifts to Minors Act
right ....................................
of survivorship and not (STATE)
as
tenants in common
</TABLE>

Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto

<TABLE>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
</TABLE>

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares

of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

<TABLE>
<S> <C> <C>
Dated,
X
NOTICE: THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST CORRE-
SPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X
Signature(s) must be guaranteed by a bank, broker or qualified financial
institution.
</TABLE>

<PAGE>

December 1, 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. 333-62667), as amended, filed by the Company
under the Securities Act of 1933, as amended ("Registration Statement"), with
respect to up to a maximum of 1,552,500 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.
December 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 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, except
for Note 18, as to which the date is October 26, 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
December 1, 1998

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 25,471
<SECURITIES> 129,620
<RECEIVABLES> 385,023
<ALLOWANCES> 5,722
<INVENTORY> 0
<CURRENT-ASSETS> 534,392
<PP&E> 15,258
<DEPRECIATION> 7,163
<TOTAL-ASSETS> 551,189
<CURRENT-LIABILITIES> 515,602
<BONDS> 0
0
0
<COMMON> 5,655
<OTHER-SE> 29,932
<TOTAL-LIABILITY-AND-EQUITY> 537,189
<SALES> 0
<TOTAL-REVENUES> 39,117
<CGS> 0
<TOTAL-COSTS> 14,647
<OTHER-EXPENSES> 15,489
<LOSS-PROVISION> 2,520
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> 6,048
<INCOME-TAX> 1,948
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,100
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.71

</TABLE>