Encore Bancshares Reports Second Quarter 2010 Net Loss Of $12.7 Million, Or $1.16 Per Diluted Share

HOUSTON, July 23, 2010 (GLOBE NEWSWIRE) -- Encore Bancshares, Inc. (Nasdaq:EBTX) today announced its financial results for the second quarter of 2010.

Earnings significantly reduced by credit costs associated with exiting Florida
  • Net commercial loan charge-offs of $13.2 million in the Florida portfolio
  • Write down of loans held for sale of $2.8 million
  • Florida legacy commercial loans reduced to $56.2 million

Florida transactions
  • Closed sale of two Florida branches in May, which included $50.5 million in deposits
  • Final Florida exit transaction remains on track
  • Loans held for sale of $70.6 million
  • Deposits held for sale of $184.1 million

Capital position and credit reserves remain strong
  • Estimated tier 1 capital of 14.59% and tangible common equity ratio of 6.80%
  • Allowance for loan losses of 2.74% of loans, excluding loans held for sale

Texas franchise shows strong core deposit growth
  • DDA growth of 17.1%, linked quarter
  • DDA as a percent of total deposits in Texas grew to 18%
  • Total Texas deposits top $1.0 billion at June 30, 2010

"We continue to work through our Florida problem loans and to reduce our exposure as rapidly as reasonable. I am pleased that our exit of the Florida market remains on track," said James S. D'Agostino, Jr., Chairman and Chief Executive Officer of Encore Bancshares, Inc. "I am optimistic about the opportunity to continue to build our Houston franchise."

Earnings

For the three months ended June 30, 2010, our net loss was $12.7 million, compared with net earnings of $821,000 for the same period of 2009. Loss per diluted common share for the second quarter of 2010 was $1.16, after deducting preferred dividends, compared with earnings per diluted common share of $0.02 for the same period of 2009. The loss for the quarter was due primarily to credit costs related to the Florida market.

For the six months ended June 30, 2010, the net loss was $14.9 million, compared with net earnings of $2.0 million for the same period of 2009. The loss per diluted share, after deducting preferred dividends, was $1.46, compared with net earnings of $0.08 for the comparable period of 2009. The loss was due primarily to credit costs and write downs of assets held for sale in Florida.

Net Interest Income

Net interest income on a tax equivalent basis (TE) for the second quarter of 2010 was $11.1 million, a decrease of $518,000, or 4.5% compared with the same period of 2009. The net interest margin (TE) contracted 17 basis points to 2.92% during the same comparison period. Net interest income (TE) for the six months ended June 30, 2010 was $22.7 million, a decrease of $439,000, or 1.9%, compared with the same period of 2009. The net interest margin (TE) contracted 10 basis points during this same comparison period. The decrease in margin for both periods was due primarily to the decrease in loans and an offsetting increase in short term lower yielding investments. On a linked quarter basis (compared with the immediately preceding quarter), net interest income (TE) decreased $553,000, or 4.8%, and the net interest margin decreased 19 basis points. The decrease in margin was due to a combination of lower loan yields, which was due mainly to a $23.5 million increase in nonaccrual loans, and lower securities balances, which were reinvested in temporary investments at lower interest rates.

Noninterest Income

Noninterest income was $7.9 million for the second quarter of 2010, an increase of $1.6 million, or 25.6%, compared with the same period of 2009. The increase was due primarily to the $1.1 million gain on sale of two branches in Florida. In addition, trust and investment management fees increased $504,000, or 12.3%, as assets under management grew 12.7% due to the improvements in the equity markets.

Noninterest Expense

Noninterest expense was $19.4 million for the second quarter of 2010, an increase of $5.7 million, compared with the same period of 2009. Excluding the $2.8 million write down of loans held for sale, noninterest expense was $16.6 million, an increase of $2.9 million, or 21.1%, compared with the same period of 2009. The increase was due primarily to a combination of higher compensation expense, foreclosed real estate expense and professional fees. The increase in compensation was due in part to the addition of executive management, loan workout personnel and new lenders to grow the bank's commercial lending platform in Houston.  The increase in foreclosed real estate expense primarily reflected write downs or losses on the sale of properties, the largest of which was a $1.0 million write down of a lot in Florida. The increase in professional fees primarily reflects costs associated with loan collection and the recent filing of our shelf registration statement.

Segment Earnings

On a segment basis, our banking segment showed a net loss of $13.5 million, compared with net earnings of $47,000 in the same period of 2009, due primarily to credit costs in Florida. Our wealth management group had net earnings of $702,000 for the second quarter of 2010, relatively unchanged from the prior year period. Wealth management fees rose due to rising equity valuations, but were partially offset by higher expense, which was primarily compensation related. Our insurance agency showed net earnings of $297,000 for the second quarter of 2010, an increase of $21,000.

Loans

Period end loans, including loans held for sale, were $1.1 billion at June 30, 2010, a decrease of $99.3 million, or 8.6%, compared with June 30, 2009. The decrease was due primarily to lower construction and land loans and declining loans outstanding in Florida.

Deposits

Period end deposits, including deposits held for sale were $1.2 billion, at June 30, 2010, an increase of $23.2 million, or 2.0%, compared with June 30, 2009. During the second quarter of 2010, we completed the sale of two branches in the Tampa, Florida area which included deposits totaling $50.5 million. Average deposits were $1.2 billion for the second quarter of 2010, an increase of $42.7 million, or 3.7%, compared with the same period of 2009.

Credit Quality and Capital Ratios

The provision for loan losses was $18.0 million for the second quarter of 2010, compared with $2.9 million for the same period of 2009. The increase in the provision for loan losses primarily reflects declining collateral values in Florida. Net charge-offs for the second quarter were $16.5 million, or 6.23% of average total loans on an annualized basis, compared with $4.4 million, or 1.50% of average total loans on an annualized basis in the same period of 2009. Commercial loan charge-offs were $13.6 million, the majority of which were in Florida as we reduced the carrying value of our nonperforming loans in Florida down to the underlying collateral values.  We are now carrying Florida nonperforming loans, excluding loans held for sale, at 62.1% of the legal loan balance.  Florida nonperforming loans include $5.5 million of loans held for sale, which are carried at 66.3% of the original loan balance. The allowance for loan losses was $26.7 million, or 2.74% of loans, excluding loans held for sale, at June 30, 2010, compared with $25.2 million, or 2.19% at June 30, 2009.  

At June 30, 2010, nonperforming assets were $77.8 million compared with $51.8 million at March 31, 2010 and $36.6 million at June 30, 2009. At June 30, 2010 nonaccrual loans were $22.4 million in Texas, compared with $8.9 million at March 31, 2010, an increase of $13.6 million. The increase consisted of three relationships: two loans associated with a residence, a land loan, and a loan to an individual, all of which are secured by collateral in excess of the loan amount. At June 30, 2010, nonaccrual loans were $41.8 million in Florida, compared with $31.9 million at March 31, 2010. The increase consisted mainly of several commercial real estate loans. Investment in real estate was $13.6 million at June 30, 2010, compared with $11.1 million at March 31, 2010, an increase of $2.5 million, or 23.1%. The increase was due primarily to the repossession of a $2.2 million parcel of vacant land in Florida. Restructured loans still accruing were $1.1 million at June 30, 2010, compared with $5.7 million at March 31, 2010. The decrease was due primarily to a land loan in Houston that was moved to nonaccrual.

As of June 30, 2010, our estimated Tier 1 risk-based, total risk-based and leverage capital ratios were 14.59%, 15.86%, and 9.93%, respectively. In addition, Encore Bank was considered "well capitalized" pursuant to regulatory capital definitions. Book value per share and tangible book value per share were $13.06 and $9.47 at June 30, 2010, compared with $14.43 and $10.76 at March 31, 2010. The decrease was primarily due to the loss for the quarter and additional shares issued.

Conference Call

Encore will host a conference call for investors and analysts that will be broadcast live via the Internet on Friday, July 23, 2010, at 10:00 a.m. Eastern Time. Interested parties may participate by calling 877-303-6295 at least ten minutes prior to the start time.

To listen to this conference call live via the Internet, please visit the Investor Relations section of the Company's web site at http://www.encorebank.com at least fifteen minutes prior to the call to register, download and install any necessary audio software. An audio archive of the call will also be available on the web site on or before Monday, July 26, 2010.

About Encore Bancshares, Inc.

Encore Bancshares, Inc. is a financial holding company headquartered in Houston, Texas and offers a broad range of banking, wealth management and insurance services through Encore Bank, N.A., and its affiliated companies. Encore Bank operates 11 private client offices in the Greater Houston area and four in southwest Florida. Headquartered in Houston and with $1.6 billion in assets, Encore Bank builds relationships with professional firms, privately-owned businesses, investors and affluent individuals. Encore Bank offers a full range of business and personal banking products and services, as well as financial planning, wealth management, trust and insurance products through its trust division, Encore Trust, and its affiliated companies, Linscomb & Williams and Town & Country Insurance. Products and services offered by Encore Bank's affiliates are not FDIC insured. The Company's common stock is listed on the NASDAQ Global Market under the symbol "EBTX".

The Encore Bancshares, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4257

This press release contains certain financial information determined by methods other than in accordance with GAAP. Specifically, Encore reviews tangible book value per share, return on average tangible common equity and the tangible common equity to tangible assets ratio for internal planning and forecasting purposes. Encore reviews its net interest income, net interest spread and net interest margin on a tax equivalent basis, which is standard practice in the banking industry.  Encore has included in this press release information relating to these non-GAAP financial measures for the applicable periods presented. Encore's management believes these non-GAAP financial measures provide information useful to investors in understanding our financial results and believes that its presentation, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting our business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. Additionally, Encore has reviewed and presented non-GAAP financial information related to its Florida operations held-for-sale on pages 10 and 11. Encore's management believes this non-GAAP financial information is useful to investors in understanding our financial results. These non-GAAP measures should not be considered a substitute for operating results determined in accordance with GAAP and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

This press release contains certain forward-looking information about Encore Bancshares that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially from those expressed in or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:  competitive pressure among financial institutions; volatility and disruption in national and international financial markets; government intervention in the U.S. financial system; our ability to expand and grow our businesses and operations and to realize the cost savings and revenue enhancements expected from such activities; a deterioration of credit quality or a reduced demand for credit; the failure to complete the pending transaction for the sale of our Florida operations; incorrect assumptions underlying the establishment of and provisions made to the allowance for loan losses; changes in the interest rate environment; the continued service of key management personnel; our ability to attract, motivate and retain key employees; the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; changes in availability of funds; general economic conditions, either nationally, regionally or in the market areas in which we operate; legislative or regulatory developments or changes in laws; changes in the securities markets and other risks that are described from time to time in our 2009 Annual Report on Form 10-K and other reports and documents filed with the Securities and Exchange Commission.
 
Encore Bancshares, Inc. and Subsidiaries
         
FINANCIAL HIGHLIGHTS
         
(Unaudited, amounts in thousands, except per share data)
     
     
  As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,
   2010   2009   2010   2009 
         
Operations Statement Data:        
Interest income  $ 17,201  $ 19,529  $ 35,156  $ 39,154
Interest expense  6,262  8,071  12,727  16,235
Net interest income  10,939  11,458  22,429  22,919
Provision for loan losses  18,013  2,927  22,973  5,966
Net interest income after provision for loan losses  (7,074)  8,531  (544)  16,953
Noninterest income  7,947  6,327  14,856  12,431
Noninterest expense  19,395  13,711  37,659  26,448
Net earnings (loss) before income taxes  (18,522)  1,147  (23,347)  2,936
Income tax expense (benefit)  (5,869)  326  (8,443)  980
Net earnings (loss)  $ (12,653)  $ 821  $ (14,904)  $ 1,956
Earnings (loss) available to common shareholders  $ (13,209)  $ 267  $ (16,016)  $ 849
         
Common Share Data:        
Basic earnings (loss) per share (1)  $ (1.16)  $ 0.03  $ (1.46)  $ 0.08
Diluted earnings (loss) per share (1)  (1.16)  0.02  (1.46)  0.08
Book value per share  13.06  15.39  13.06  15.39
Tangible book value per share (2)  9.47  12.14  9.47  12.14
         
Average common shares outstanding   11,375  10,334  10,969  10,284
Diluted average common shares outstanding   11,375  11,145  10,969  11,013
Shares outstanding at end of period  11,380  10,337  11,380  10,337
         
Selected Performance Ratios:        
Return on average assets (3.13)% 0.21% (1.85)% 0.25%
Return on average common equity (1) (32.89)% 0.67% (20.24)% 1.08%
Return on average tangible common equity (1)(2) (44.09)% 0.85% (27.24)% 1.37%
Taxable-equivalent net interest margin (2) 2.92% 3.09% 3.01% 3.11%
Efficiency ratio 93.16% 76.14% 89.05% 73.86%
Noninterest income to total revenue 42.08% 35.57% 39.84% 35.17%
         
(1) Using earnings (loss) available to common shareholders.         
(2) Non-GAAP measure. See calculation of tangible common equity and taxable-equivalent amounts in subsequent tables.
 
 
Encore Bancshares, Inc. and Subsidiaries
           
CONSOLIDATED BALANCE SHEETS
           
(Unaudited, dollars in thousands, except per share data)
           
   June 30, 2010   March 31, 2010   Dec 31, 2009   Sept 30, 2009   June 30, 2009 
           
ASSETS          
Cash and due from banks  $ 14,718  $ 18,420  $ 16,796  $ 15,035  $ 17,891
Interest-bearing deposits in banks  314,624  237,771  172,984  144,238  124,959
Federal funds sold and other   902  1,695  7,396  6,818  3,263
Cash and cash equivalents  330,244  257,886  197,176  166,091  146,113
Securities available-for-sale, at estimated fair value  75,820  138,495  140,651  134,079  132,437
Securities held-to-maturity, at amortized cost  68,628  88,454  117,171  117,316  108,594
Loans held-for-sale  77,914  81,953  1,058  --  1,168
Loans receivable  972,765  974,301  1,078,205  1,106,169  1,148,820
Allowance for loan losses  (26,675)  (25,132)  (26,501)  (27,575)  (25,214)
 Net loans receivable  946,090  949,169  1,051,704  1,078,594  1,123,606
Federal Home Loan Bank of Dallas stock, at cost  9,593  9,578  9,569  9,565  9,561
Investment in real estate  13,602  11,054  14,639  6,952  8,032
Premises and equipment, net  7,567  9,327  15,484  15,953  16,435
Cash surrender value of life insurance policies  15,637  15,489  15,339  15,182  15,019
Goodwill  35,799  35,799  35,799  27,873  27,873
Other intangible assets, net  5,034  5,192  5,351  5,521  5,691
Accrued interest receivable and other assets  36,418  32,176  31,414  23,594  22,189
Other assets held-for-sale  3,269  3,344  --  --  --
   $ 1,625,615  $ 1,637,916  $ 1,635,355  $ 1,600,720  $ 1,616,718
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Deposits:          
Noninterest-bearing  $ 182,729  $ 156,071  $ 174,102  $ 152,367  $ 146,373
Interest-bearing  832,876  802,597  1,017,734  1,012,466  1,030,134
Deposits held-for-sale  184,106  242,755  --  --  --
Total deposits  1,199,711  1,201,423  1,191,836  1,164,833  1,176,507
Borrowings and repurchase agreements  219,602  218,560  220,612  221,492  223,218
Junior subordinated debentures  20,619  20,619  20,619  20,619  20,619
Accrued interest payable and other liabilities  7,804  7,094  15,620  7,316  8,565
Other liabilities held-for-sale  6  10  --  --  --
Total liabilities  1,447,742  1,447,706  1,448,687  1,414,260  1,428,909
           
Commitments and contingencies          
Shareholders' equity:          
Preferred stock  29,238  29,107  28,976  28,847  28,718
Common stock  11,416  11,195  10,527  10,508  10,346
Additional paid-in capital  121,533  121,345  116,084  115,860  115,698
Retained earnings   15,079  28,288  31,095  30,066  32,372
Common stock in treasury, at cost  (346)  (319)  (233)  (123)  (123)
Accumulated other comprehensive income  953  594  219  1,302  798
Shareholders' equity  177,873  190,210  186,668  186,460  187,809
   $ 1,625,615  $ 1,637,916  $ 1,635,355  $ 1,600,720  $ 1,616,718
           
Ratios and Per Share Data:          
Leverage ratio (1) 9.93% 10.73% 10.55% 10.94% 11.22%
Tier 1 risk-based capital ratio (1) 14.59% 15.56% 14.80% 15.30% 14.99%
Total risk-based capital ratio (1) 15.86% 16.82% 16.07% 16.57% 16.25%
Book value per share  $ 13.06  $ 14.43  $ 15.01  $ 15.01  $ 15.39
Tangible book value per share (2)  9.47  10.76  11.10  11.83  12.14
Tangible common equity to tangible assets (2) 6.80% 7.52% 7.31% 7.93% 7.93%
           
(1) Estimated at June 30, 2010.
(2) Non-GAAP measure. See calculation of tangible common equity in subsequent table. 
 
 
Encore Bancshares, Inc. and Subsidiaries
                 
CONSOLIDATED STATEMENTS OF OPERATIONS
                 
(Unaudited, amounts in thousands, except per share data)
                 
    Three Months Ended Six Months Ended
    June 30, March 31, Dec 31, Sept 30, June 30, June 30,
     2010   2010   2009   2009   2009   2010   2009 
Interest income:                
Loans, including fees    $ 14,111  $ 14,316  $ 16,157  $ 17,045  $ 17,220  $ 28,427  $ 34,699
Loans held-for-sale    1,330  1,378  11  34  32  2,708  60
Securities    1,526  2,046  2,177  2,258  2,121  3,572  4,083
Federal funds sold and other    234  215  210  180  156  449  312
Total interest income    17,201  17,955  18,555  19,517  19,529  35,156  39,154
Interest expense:                
Deposits    2,962  3,042  4,507  5,131  5,643  6,004  11,375
Deposits held-for-sale    863  1,010  --  --  --  1,873  --
Borrowings and repurchase agreements    2,139  2,116  2,129  2,129  2,119  4,255  4,235
Junior subordinated debentures    298  297  298  302  309  595  625
Total interest expense    6,262  6,465  6,934  7,562  8,071  12,727  16,235
Net interest income    10,939  11,490  11,621  11,955  11,458  22,429  22,919
Provision for loan losses    18,013  4,960  3,009  7,685  2,927  22,973  5,966
Net interest income after provision for loan losses    (7,074)  6,530  8,612  4,270  8,531  (544)  16,953
Noninterest income:                
Trust and investment management fees    4,591  4,618  4,557  4,501  4,087  9,209  7,836
Mortgage banking    78  36  41  110  351  114  502
Insurance commissions and fees    1,488  1,639  1,098  1,365  1,404  3,127  3,014
Net gain on sale of available-for-sale securities    120  99  1,937  387  --  219  --
Gain on sale of branches    1,115  --  --  --  --  1,115  --
Other    555  517  460  450  485  1,072  1,079
Total noninterest income    7,947  6,909  8,093  6,813  6,327  14,856  12,431
Noninterest expense:                
Compensation    8,638  8,551  7,657  7,761  7,231  17,189  14,745
Occupancy     1,454  1,478  1,546  1,496  1,554  2,932  3,008
Equipment    330  363  383  430  449  693  882
Advertising and promotion    153  181  177  214  200  334  416
Outside data processing    897  870  829  797  783  1,767  1,547
Professional fees    1,435  921  1,126  912  1,043  2,356  1,979
Intangible amortization    159  158  170  171  169  317  340
FDIC assessment    703  655  1,047  270  746  1,358  798
Foreclosed real estate expenses, net    1,402  1,124  675  183  378  2,526  645
Write down of assets held-for-sale    2,793  2,535  --  --  --  5,328  --
Other    1,431  1,428  1,077  1,055  1,158  2,859  2,088
Total noninterest expense    19,395  18,264  14,687  13,289  13,711  37,659  26,448
Net earnings (loss) before income taxes     (18,522)  (4,825)  2,018  (2,206)  1,147  (23,347)  2,936
Income tax expense (benefit)    (5,869)  (2,574)  435  (453)  326  (8,443)  980
Net earnings (loss)    $ (12,653)  $ (2,251)  $ 1,583  $ (1,753)  $ 821  $ (14,904)  $ 1,956
Earnings (loss) available to common shareholders    $ (13,209)  $ (2,807)  $ 1,029  $ (2,306)  $ 267  $ (16,016)  $ 849
Earnings (loss) per common share:                
Basic    $ (1.16)  $ (0.27)  $ 0.10  $ (0.22)  $ 0.03  $ (1.46)  $ 0.08
Diluted    (1.16)  (0.27)  0.09  (0.22)  0.02  (1.46)  0.08
Average common shares outstanding    11,375  10,558  10,513  10,441  10,334  10,969  10,284
Diluted average common shares outstanding    11,375  10,558  11,536  10,441  11,145  10,969  11,013
 
 
Encore Bancshares, Inc. and Subsidiaries
               
SELECTED FINANCIAL DATA OF FLORIDA OPERATIONS HELD-FOR-SALE (1)
               
(Unaudited, amounts in thousands)
               
  Three Months Ended Six Months Ended
  June 30, March 31, Dec 31, Sept 30, June 30, June 30,
Income and Expense Data  2010   2010   2009   2009   2009   2010   2009 
Interest income on loans, including fees  $ 1,308  $ 1,366  $ 1,396  $ 1,377  $ 1,358  $ 2,674  $ 2,694
Interest expense on deposits  863  1,010  1,139  1,380  1,643  1,873  3,320
Net interest income (expense)  445  356  257  (3)  (285)  801  (626)
Write down of loans   --  1,792  --  --  --  1,792  --
Noninterest income  31  25  21  15  10  56  23
Noninterest expense:              
Compensation  544  571  485  499  500  1,115  999
Occupancy   239  261  263  270  255  500  513
Equipment  20  53  56  65  65  73  123
Advertising and promotion  6  6  8  57  25  12  36
Outside data processing  2  10  1  3  1  12  --
FDIC assessment  139  127  213  203  13  266  24
Write down of assets held-for-sale  2,793  2,535  --  --  --  5,328  --
Other  183  261  113  108  105  444  185
Total noninterest expense  3,926  3,824  1,139  1,205  964  7,750  1,880
               
Net expense from Florida operations held-for-sale  (3,450)  (5,235)  (861)  (1,193)  (1,239)  (8,685)  (2,483)
               
Average Balances of Assets and Liabilities              
Assets:              
Loans  $ 79,981  $ 84,594  $ 86,543  $ 85,413  $ 85,107    
Noninterest-earning assets  4,481  7,377  7,532  7,607  7,494    
Total assets  $ 84,462  $ 91,971  $ 94,075  $ 93,020  $ 92,601    
Liabilities:              
Interest checking  $ 45,770  $ 46,780  $ 43,461  $ 37,078  $ 29,106    
Money market and savings  45,146  48,704  50,517  48,982  46,094    
Time deposits  111,003  124,325  124,952  139,859  160,861    
Total interest-bearing deposits  201,919  219,809  218,930  225,919  236,061    
Noninterest-bearing deposits  17,830  17,213  14,412  14,455  14,893    
Other liabilities  253  303  350  436  601    
Total liabilities  $ 220,002  $ 237,325  $ 233,692  $ 240,810  $ 251,555    
               
(1) This data represents a non-GAAP presentation of Florida operations held-for-sale that we believe provides selected information useful to investors in understanding our financial results. This information should not be considered a substitute for operating results determined in accordance with GAAP. This table includes certain direct income and expense of our Florida operations held-for-sale for all prior periods for comparison purposes and no corporate income or expense allocations have been made.
 
 
Encore Bancshares, Inc. and Subsidiaries
           
AVERAGE CONSOLIDATED BALANCE SHEETS
           
(Unaudited, dollars in thousands)
           
  Three Months Ended 
  June 30, 2010 March 31, 2010 Dec 31, 2009 Sept 30, 2009 June 30, 2009
           
Assets:          
Interest-earning assets:          
Loans  $ 978,547  $ 979,171  $ 998,519  $ 1,038,069  $ 1,081,341
Loans held-for-sale (1)  81,148  85,204  87,097  87,129  86,719
Total loans  1,059,695  1,064,375  1,085,616  1,125,198  1,168,060
Securities  186,777  230,390  241,267  235,819  215,473
Federal funds sold and other  275,148  220,019  205,944  168,213  121,328
Total interest-earning assets  1,521,620  1,514,784  1,532,827  1,529,230  1,504,861
Less: Allowance for loan losses  (24,796)  (26,672)  (27,197)  (23,972)  (25,656)
Noninterest-earning assets  122,236  126,284  103,938  102,245  104,025
Noninterest-earning assets held-for-sale (1)  4,481  7,377  7,532  7,607  7,494
Total assets  $ 1,623,541  $ 1,621,773  $ 1,617,100  $ 1,615,110  $ 1,590,724
           
Liabilities and shareholders' equity:          
Interest-bearing liabilities:          
Interest checking  $ 145,856  $ 153,023  $ 151,181  $ 154,475  $ 148,287
Money market and savings   238,000  240,292  262,470  257,807  197,182
Time deposits  415,615  400,451  382,150  385,962  403,722
Interest-bearing deposits held-for-sale (1)  201,919  219,809  218,930  225,919  236,061
Total interest-bearing deposits  1,001,390  1,013,575  1,014,731  1,024,163  985,252
Borrowings and repurchase agreements  218,794  220,759  222,428  222,978  226,118
Junior subordinated debentures  20,619  20,619  20,619  20,619  20,619
Total interest-bearing liabilities  1,240,803  1,254,953  1,257,778  1,267,760  1,231,989
Noninterest-bearing liabilities:          
Noninterest-bearing deposits  168,021  146,779  148,921  133,433  144,364
Noninterest-bearing deposits held-for-sale (1)  17,830  17,213  14,412  14,455  14,893
Other liabilities  6,384  15,412  8,572  10,356  10,765
Other liabilities held-for-sale (1)  253  303  350  436  601
Total liabilities  1,433,291  1,434,660  1,430,033  1,426,440  1,402,612
Shareholders' equity   190,250  187,113  187,067  188,670  188,112
Total liabilities and shareholders' equity   $ 1,623,541  $ 1,621,773  $ 1,617,100  $ 1,615,110  $ 1,590,724
           
(1) Portions of this table represent a non-GAAP presentation of Florida operations held-for-sale that we believe provide information useful to investors in understanding our financial results. This table includes average balances of Florida operations held-for-sale for all prior periods for comparison purposes.
 
 
Encore Bancshares, Inc. and Subsidiaries
           
SELECTED FINANCIAL DATA
           
(Unaudited, dollars in thousands)
           
Loan Portfolio: June 30, 2010 March 31, 2010 Dec 31, 2009 Sept 30, 2009 June 30, 2009
           
Commercial:          
Commercial  $ 131,712  $ 115,653  $ 115,431  $ 107,034  $ 126,079
Commercial real estate   189,471  199,166  259,480  253,634  232,179
Real estate construction   55,332  66,618  87,008  118,513  154,307
Total commercial  376,515  381,437  461,919  479,181  512,565
Consumer:          
Residential real estate first lien  215,911  211,366  222,337  228,090  232,885
Residential real estate second lien  290,934  289,344  291,433  292,265  292,891
Home equity lines  66,311  68,677  74,356  76,369  77,793
Consumer installment - indirect  6,311  7,339  8,372  9,743  11,202
Consumer other  16,783  16,138  19,788  20,521  21,484
Total consumer  596,250  592,864  616,286  626,988  636,255
Loans receivable  972,765  974,301  1,078,205  1,106,169  1,148,820
Loans held-for-sale  77,914  81,953  1,058  --  1,168
   --        
Total loans  $ 1,050,679  $ 1,056,254  $ 1,079,263  $ 1,106,169  $ 1,149,988
           
Asset Quality:          
Nonaccrual loans - Texas (1)  $ 22,441  $ 8,860  $ 9,908  $ 9,128  $ 10,795
Nonaccrual loans - Florida (1)  41,773  31,851  26,080  29,241  17,757
Total nonaccrual loans (1)  64,214  40,711  35,988  38,369  28,552
Investment in real estate - Texas  6,194  6,954  9,494  4,054  5,213
Investment in real estate - Florida  7,408  4,100  5,145  2,898  2,819
Total investment in real estate  13,602  11,054  14,639  6,952  8,032
Total nonperforming assets  $ 77,816  $ 51,765  $ 50,627  $ 45,321  $ 36,584
           
Accruing loans past due 90 days or more  $ --  $ --  $ 1,489  $ --  $ --
           
Restructured loans still accruing  $ 1,072  $ 5,710  $ 530  $ --  $ --
           
Asset Quality Ratios:          
Nonperforming assets to total loans and investment in real estate  7.31% 4.85% 4.63% 4.07% 3.16%
Net charge-offs to average total loans  6.23% 2.41% 1.49% 1.88% 1.50%
Allowance for loan losses to period end loans (excluding loans held-for-sale) 2.74% 2.58% 2.46% 2.49% 2.19%
Allowance for loan losses to nonperforming loans  41.54% 61.73% 73.64% 71.87% 88.31%
           
Deposits:          
Noninterest-bearing deposits  $ 182,729  $ 156,071  $ 174,102  $ 152,367  $ 146,373
Interest checking  152,041  157,796  211,174  189,143  184,620
Money market and savings  259,189  237,204  294,840  312,206  295,176
Time deposits less than $100  132,514  130,898  191,372  193,005  206,149
Core deposits   726,473  681,969  871,488  846,721  832,318
Time deposits $100 and greater  265,076  251,089  298,163  293,041  321,737
Brokered deposits  24,056  25,610  22,185  25,071  22,452
Deposits held-for-sale  184,106  242,755  --  --  --
Total deposits  $ 1,199,711  $ 1,201,423  $ 1,191,836  $ 1,164,833  $ 1,176,507
           
Assets Under Management  $ 2,592,186  $ 2,786,220  $ 2,673,832  $ 2,519,458  $ 2,299,338
           
(1) Nonaccrual troubled debt restructurings are included in nonaccrual loans.
 
 
Encore Bancshares, Inc. and Subsidiaries
           
ALLOWANCE FOR LOAN LOSSES
           
(Unaudited, dollars in thousands)
           
  Three Months Ended
  June 30, 2010 March 31, 2010 Dec 31, 2009 Sept 30, 2009 June 30, 2009
           
Allowance for loan losses at beginning of quarter  $ 25,132  $ 26,501  $ 27,575  $ 25,214  $ 26,664
           
Charge-offs:          
Commercial:          
Commercial  (402)  (382)  (326)  (1,475)  (796)
Commercial real estate  (10,118)  (4,346)  (701)  (64)  (313)
Real estate construction   (3,101)  (322)  (3,142)  (2,679)  (718)
Total commercial   (13,621)  (5,050)  (4,169)  (4,218)  (1,827)
           
Consumer:          
Residential real estate first lien   (1,707)  (618)  (813)  (474)  (1,446)
Residential real estate second lien   (1,301)  (434)  (626)  (829)  (634)
Home equity lines   (237)  (699)  (677)  (344)  (517)
Consumer installment - indirect  (68)  (77)  (100)  (145)  (150)
Consumer other   (180)  (7)  (3)  (18)  (9)
Total consumer  (3,493)  (1,835)  (2,219)  (1,810)  (2,756)
           
Total charge-offs  (17,114)  (6,885)  (6,388)  (6,028)  (4,583)
           
Recoveries:          
Commercial:          
Commercial  543  131  2,269  564  62
Commercial real estate   17  --  --  --  --
Real estate construction   3  46  --  --  6
Total commercial   563  177  2,269  564  68
           
Consumer:          
Residential real estate first lien   9  134  1  74  1
Residential real estate second lien   27  132  12  28  13
Home equity lines   11  78  4  15  88
Consumer installment - indirect  33  34  18  22  36
Consumer other   1  1  1  1  --
Total consumer  81  379  36  140  138
           
Total recoveries  644  556  2,305  704  206
           
Net charge-offs  (16,470)  (6,329)  (4,083)  (5,324)  (4,377)
           
Provision for loan losses  18,013  4,960  3,009  7,685  2,927
           
Allowance for loan losses at end of quarter  $ 26,675  $ 25,132  $ 26,501  $ 27,575  $ 25,214
 
 
Encore Bancshares, Inc. and Subsidiaries
                 
SEGMENT OPERATIONS
                 
(Unaudited, dollars in thousands)
                 
  As of and for the Three Months Ended As of and for the Six Months 
  June 30, March 31, Dec 31, Sept 30, June 30, Ended June 30,
   2010   2010   2009   2009   2009   2010   2009 
Banking              
Net interest income   $ 11,191  $ 11,742  $ 11,873  $ 12,213  $ 11,726  $ 22,933  $ 23,462
Provision for loan losses  18,013  4,960  3,009  7,685  2,927  22,973  5,966
Noninterest income  1,800  647  2,423  937  760  2,447  1,421
Noninterest expense  14,747  13,675  10,591  9,090  9,614  28,422  18,220
Earnings (loss) before income taxes  (19,769)  (6,246)  696  (3,625)  (55)  (26,015)  697
Income tax expense (benefit)  (6,311)  (3,076)  (57)  (1,028)  (102)  (9,387)  189
Net earnings (loss)   $ (13,458)  $ (3,170)  $ 753  $ (2,597)  $ 47  $ (16,628)  $ 508
Total assets at quarter end  $ 1,628,706  $ 1,645,468  $ 1,644,083  $ 1,608,348  $ 1,623,467  $ 1,628,706  $ 1,623,467
             
Wealth Management              
Net interest income   $ 41  $ 40  $ 40  $ 39  $ 38  $ 81  $ 76
Noninterest income  4,593  4,618  4,570  4,501  4,087  9,211  7,836
Noninterest expense  3,547  3,562  3,022  3,088  3,040  7,109  6,138
Earnings before income taxes  1,087  1,096  1,588  1,452  1,085  2,183  1,774
Income tax expense   385  388  575  586  384  773  627
Net earnings   $ 702  $ 708  $ 1,013  $ 866  $ 701  $ 1,410  $ 1,147
Total assets at quarter end  $ 62,518  $ 61,316  $ 59,618  $ 50,174  $ 49,563  $ 62,518  $ 49,563
                 
Insurance                
Net interest income   $ 5  $ 5  $ 6  $ 5  $ 3  $ 10  $ 6
Noninterest income  1,554  1,644  1,100  1,375  1,480  3,198  3,174
Noninterest expense  1,101  1,027  1,074  1,111  1,057  2,128  2,090
Earnings before income taxes  458  622  32  269  426  1,080  1,090
Income tax expense   161  218  21  94  150  379  383
Net earnings   $ 297  $ 404  $ 11  $ 175  $ 276  $ 701  $ 707
Total assets at quarter end  $ 8,714  $ 8,053  $ 7,962  $ 7,390  $ 7,625  $ 8,714  $ 7,625
               
Other              
Net interest expense  $ (298)  $ (297)  $ (298)  $ (302)  $ (309)  $ (595)  $ (625)
Noninterest income  --  --  --  --  --  --  --
Loss before income taxes  (298)  (297)  (298)  (302)  (309)  (595)  (625)
Income tax benefit  (104)  (104)  (104)  (105)  (106)  (208)  (219)
Net loss  $ (194)  $ (193)  $ (194)  $ (197)  $ (203)  $ (387)  $ (406)
Total assets at quarter end  $ (74,323)  $ (76,921)  $ (76,308)  $ (65,192)  $ (63,937)  $ (74,323)  $ (63,937)
               
Consolidated              
Net interest income   $ 10,939  $ 11,490  $ 11,621  $ 11,955  $ 11,458  $ 22,429  $ 22,919
Provision for loan losses  18,013  4,960  3,009  7,685  2,927  22,973  5,966
Noninterest income  7,947  6,909  8,093  6,813  6,327  14,856  12,431
Noninterest expense  19,395  18,264  14,687  13,289  13,711  37,659  26,448
Earnings (loss) before income taxes  (18,522)  (4,825)  2,018  (2,206)  1,147  (23,347)  2,936
Income tax expense (benefit)   (5,869)  (2,574)  435  (453)  326  (8,443)  980
Net earnings (loss)   $ (12,653)  $ (2,251)  $ 1,583  $ (1,753)  $ 821  $ (14,904)  $ 1,956
Total assets at quarter end  $ 1,625,615  $ 1,637,916  $ 1,635,355  $ 1,600,720  $ 1,616,718  $ 1,625,615  $ 1,616,718
 
 
Encore Bancshares, Inc. and Subsidiaries
             
TAXABLE-EQUIVALENT YIELD ANALYSIS (1)
             
(Unaudited, dollars in thousands)
             
  Three Months Ended June 30,
  2010 2009
             
  Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate
Assets:            
Interest-earning assets:            
Loans  $ 978,547  $ 14,175 5.81%  $ 1,166,448  $ 17,291 5.95%
Loans held-for-sale  81,148  1,330 6.57%  1,612  32 7.96%
Total loans  1,059,695  15,505 5.87%  1,168,060  17,323 5.95%
Securities  186,777  1,586 3.41%  215,473  2,173 4.04%
Federal funds sold and other  275,148  234 0.34%  121,328  156 0.52%
Total interest-earning assets  1,521,620  17,325 4.57%  1,504,861  19,652 5.24%
Less: Allowance for loan losses  (24,796)      (25,656)    
Noninterest-earning assets  122,236      111,519    
Noninterest-earning assets held-for-sale  4,481      --    
Total assets  $ 1,623,541      $ 1,590,724    
             
Liabilities and shareholders' equity:            
Interest-bearing liabilities:            
Interest checking  $ 145,856  $ 113 0.31%  $ 177,393  $ 212 0.48%
Money market and savings  238,000  447 0.75%  243,276  685 1.13%
Time deposits  415,615  2,402 2.32%  564,583  4,746 3.37%
Interest-bearing deposits held-for-sale  201,919  863 1.71%  --   --   
Total interest-bearing deposits  1,001,390  3,825 1.53%  985,252  5,643 2.30%
Borrowings and repurchase agreements  218,794  2,139 3.92%  226,118  2,119 3.76%
Junior subordinated debentures  20,619  298 5.80%  20,619  309 6.01%
Total interest-bearing liabilities  1,240,803  6,262 2.02%  1,231,989  8,071 2.63%
Noninterest-bearing liabilities:            
Noninterest-bearing deposits  168,021      159,257    
Noninterest-bearing deposits held-for-sale  17,830      --    
Other liabilities  6,384      11,366    
Other liabilities held-for-sale  253      --    
Total liabilities  1,433,291      1,402,612    
Shareholders' equity   190,250      188,112    
Total liabilities and shareholders' equity   $ 1,623,541      $ 1,590,724    
             
Net interest income     $ 11,063      $ 11,581  
             
Net interest spread     2.55%     2.61%
Net interest margin     2.92%     3.09%
             
(1) Non-GAAP measure. See calculation of taxable-equivalent amounts in subsequent table.
 
 
Encore Bancshares, Inc. and Subsidiaries
             
TAXABLE-EQUIVALENT YIELD ANALYSIS (1)
             
(Unaudited, dollars in thousands)
             
  Six Months Ended June 30,
  2010 2009
  Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate Average Outstanding Balance Interest Income/ Expense Average Yield/ Rate
Assets:            
Interest-earning assets:            
Loans  $ 978,857  $ 28,557 5.88%  $ 1,187,456  $ 34,835 5.92%
Loans held-for-sale  83,165  2,708 6.57%  1,502  60 8.06%
Total loans  1,062,022  31,265 5.94%  1,188,958  34,895 5.92%
Securities  208,463  3,692 3.57%  201,789  4,146 4.14%
Federal funds sold and other  247,736  449 0.37%  108,393  312 0.58%
Total interest-earning assets  1,518,221  35,406 4.70%  1,499,140  39,353 5.29%
Less: Allowance for loan losses  (25,729)      (25,420)    
Noninterest-earning assets  124,249      111,270    
Noninterest-earning assets held-for-sale  5,921      --    
Total assets  $ 1,622,662      $ 1,584,990    
             
Liabilities and shareholders' equity:            
Interest-bearing liabilities:            
Interest checking  $ 149,420  $ 235 0.32%  $ 179,672  $ 425 0.48%
Money market and savings  239,140  953 0.80%  235,880  1,363 1.17%
Time deposits  408,075  4,816 2.38%  559,821  9,587 3.45%
Interest-bearing deposits held-for-sale  210,814  1,873 1.79%  --   --   
Total interest-bearing deposits  1,007,449  7,877 1.58%  975,373  11,375 2.35%
Borrowings and repurchase agreements  219,771  4,255 3.90%  240,741  4,235 3.55%
Junior subordinated debentures  20,619  595 5.82%  20,619  625 6.11%
Total interest-bearing liabilities  1,247,839  12,727 2.06%  1,236,733  16,235 2.65%
Noninterest-bearing liabilities:            
Noninterest-bearing deposits  157,459      150,090    
Noninterest-bearing deposits held-for-sale  17,523      --    
Other liabilities  10,873      10,820    
Other liabilities held-for-sale  278      --    
Total liabilities  1,433,972      1,397,643    
Shareholders' equity   188,690      187,347    
Total liabilities and shareholders' equity   $ 1,622,662      $ 1,584,990    
             
Net interest income     $ 22,679      $ 23,118  
             
Net interest spread     2.64%     2.64%
Net interest margin     3.01%     3.11%
             
(1) Non-GAAP measure. See calculation of taxable-equivalent amounts in subsequent table.
 
 
Encore Bancshares, Inc. and Subsidiaries
           
NON-GAAP FINANCIAL MEASURES
           
(Unaudited, amounts in thousands)
           
  June 30, 2010 March 31, 2010 Dec 31, 2009 Sept 30, 2009 June 30, 2009
           
Shareholders' equity (GAAP)  $ 177,873  $ 190,210  $ 186,668  $ 186,460  $ 187,809
Less: Preferred stock  29,238  29,107  28,976  28,847  28,718
Goodwill and other intangible assets, net  40,833  40,991  41,150  33,394  33,564
Tangible common equity (1)  $ 107,802  $ 120,112  $ 116,542  $ 124,219  $ 125,527
           
Total assets (GAAP)  $ 1,625,615  $ 1,637,916  $ 1,635,355  $ 1,600,720  $ 1,616,718
Less: Goodwill and other intangible assets, net  40,833  40,991  41,150  33,394  33,564
Tangible assets  $ 1,584,782  $ 1,596,925  $ 1,594,205  $ 1,567,326  $ 1,583,154
           
Shares outstanding at end of period  11,380  11,162  10,504  10,499  10,337
           
(1) Tangible common equity, a non-GAAP financial measure, includes total equity, less preferred equity, goodwill and other intangible assets. Management reviews tangible common equity along with other measures of capital as part of its financial analyses and has included this information because of current interest on the part of market participants in tangible common equity as a measure of capital. The methodology of determining tangible common equity may differ among companies. 
           
  Three Months Ended June 30,   Six Months Ended June 30,
   2010   2009     2010   2009 
Net interest income (GAAP)  $ 10,939  $ 11,458    $ 22,429  $ 22,919
Taxable-equivalent adjustment (1)  124  123    250  199
Net interest income on a taxable-equivalent basis   $ 11,063  $ 11,581    $ 22,679  $ 23,118
           
(1) Net interest income, net interest spread and net interest margin are reported on a taxable-equivalent basis. The taxable-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest income, net interest spread and net interest margin on a fully taxable-equivalent basis. Management believes these measures provide useful information to investors by allowing them to make peer comparisons. 
CONTACT:  Encore Bancshares, Inc.          L. Anderson Creel, Chief Financial Officer            713.787.3138          James S. D'Agostino, Jr., Chairman and CEO            713.787.3103

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