HOUSTON, July 25, 2008 (PRIME NEWSWIRE) -- Encore Bancshares, Inc. (Nasdaq:EBTX) today announced its financial results for the second quarter of 2008.
* Net interest margin improved 46 basis points to 3.13% compared with the second quarter of 2007 and 19 basis points compared with the first quarter of 2008. * Net interest income up 35.6% compared with the second quarter of 2007. * Noninterest expense fell 5.2% compared with the second quarter of 2007. * Nonperforming assets declined from March 31, 2008, reflecting the resolution of a $6.3 million law firm loan. * Tier 1 Capital was $146.3 million or 12.82% at June 30, 2008.
"I am very pleased with the growth in our net interest margin and the growth of our banking and wealth management businesses," said James S. D'Agostino, Jr., Chairman and Chief Executive Officer. "We will continue to focus on achieving our goal of 1% return on assets for 2009, while managing the challenges of the current credit cycle. With our substantial capital base, management believes we are well positioned to continue to build a strong and profitable company."
Earnings
For the three months ended June 30, 2008, net earnings were $481,000, or $0.04 per diluted share, compared with $1.7 million, or $0.20 per diluted share for the same period of 2007. During the quarter, a $6.3 million loan to a Houston law firm, previously discussed in our filings since July 17, 2007, was resolved resulting in a charge-off of $2.1 million. Subsequently, we considered it prudent to build the allowance for loan losses due to the challenges of the current credit environment. Excluding the $2.1 million credit reserve build, net earnings were $1.9 million, or $0.18 per diluted share. Further, net earnings reflected a $2.8 million improvement in net interest income and lower expenses over the same period of 2007, partially offset by a $1.9 million decrease in mortgage banking income as a result of the strategic decision to discontinue second mortgage sales beginning in the third quarter of 2007.
For the six months ended June 30, 2008, net earnings were $1.7 million, or $0.15 per diluted share, compared with $3.4 million, or $0.42 per diluted share for the same period of 2007. Net interest income increased by $5.0 million, but this increase was offset by a $3.4 million increase in the provision for loan losses and a $4.3 million decrease in noninterest income, primarily related to a decrease in mortgage banking earnings. The change in net earnings was different than the earnings per share primarily because of the additional shares issued in our initial public offering in the third quarter of 2007.
Net Interest Income
Net interest income for the second quarter of 2008 was a record $10.8 million, an increase of $2.8 million, or 35.6%, compared with the second quarter of 2007. The net interest margin expanded 46 basis points to 3.13%, reflecting an improved asset and liability mix, as we continued to replace low yielding assets with higher yielding loans. In addition, we benefited from a steepening yield curve which allowed us to decrease the pricing of our deposits by an average rate that was more than the decline in average yield on our earning assets. For the six months ended June 30, 2008, net interest income was $20.7 million, an increase of $5.0 million, or 32.2%, compared with the same period of 2007. The net interest margin improved 42 basis points to 3.03%, due primarily to improvements in the asset and liability mix. On a linked quarter basis (compared with the immediately preceding quarter), net interest income rose $966,000, or 9.8%, and the net interest margin improved 19 basis points. The margin increase was due to a combination of a continued improvement in our asset and liability mix and the steepening of the yield curve.
Noninterest Income
Noninterest income was $6.2 million for the second quarter of 2008, a decrease of $2.6 million, or 29.4%, compared with the same period of 2007. Noninterest income for the six months ended June 30, 2008 was $12.8 million, a decrease of $4.3 million, or 25.3%, compared with the same period of 2007. The decrease for both periods was due primarily to lower mortgage banking income, resulting from our decision to discontinue second mortgage sales in the third quarter of 2007, and $405,000 in write downs of other real estate owned, which is recorded in real estate operations.
Noninterest Expense
Noninterest expense was $12.6 million for the second quarter of 2008, a decrease of $692,000, or 5.2% compared with the same period of 2007. The decrease in expenses was due in part to lower compensation, which was a result of last year's expense reduction initiative. The second quarter of 2007 also included a nonrecurring charge for early debt extinguishment which resulted from refinancing trust preferred securities. Excluding the 2007 nonrecurring charge, second quarter 2008 noninterest expense was lower by 2.3%. Noninterest expense was $25.9 million for the six months ended June 30, 2008, up $123,000, or 0.5% compared with the same period of 2007.
Segment Earnings
On a segment basis, our wealth management group showed net earnings of $1.3 million for the second quarter of 2008, an increase of $389,000, or 44.5%, compared with the prior year quarter. The growth in net earnings was due primarily to a 2.0% growth in assets under management and lower expenses. Our banking segment lost $832,000 for the second quarter of 2008, compared with net earnings of $897,000 for the same period of 2007. Net interest income improved $2.9 million, but this increase was more than offset by lower mortgage banking income and the higher loan loss provision. Our insurance group had net earnings of $277,000 for the second quarter of 2008, compared with $384,000 for the same period in 2007. The decrease in net earnings was due primarily to a soft property and casualty market, resulting in lower commission fee income.
Loans
Period end loans were $1.2 billion at June 30, 2008, up $216.3 million, or 22.7%, compared with June 30, 2007, and up $12.7 million, or 1.1%, on a linked quarter basis. Average loans were $1.2 billion, for the second quarter of 2008, an increase of $232.6 million, or 24.8%, compared with the same period of 2007.
Deposits
Period end deposits were $1.1 billion at June 30, 2008, up $34.5 million, or 3.4%, compared with June 30, 2007, and down $56.4 million, or 5.1% on a linked quarter basis. Deposits decreased during the second quarter due primarily to the strategic decision to focus on profitability and not match some competitors' aggressive deposit pricing. Noninterest-bearing deposits were $123.6 million at June 30, 2008, an increase of $17.5 million, or 16.5%, compared with June 30, 2007. Average deposits were $1.1 billion for the second quarter of 2008, an increase of $99.3 million, or 10.0%, compared with the same period of 2007.
Credit Quality and Capital Ratios
The provision for loan losses was $3.8 million in the second quarter of 2008, an increase of $2.8 million compared with the same period of 2007. The increase in the provision reflected growth in the loan portfolio, the overall credit environment, and higher net charge-offs during the quarter. Net charge-offs for the second quarter of 2008 were $3.3 million, or 1.14% of average total loans on an annualized basis, compared with $567,000, or 0.24% of average total loans for the second quarter of 2007. Net charge-offs included a $2.1 million partial charge-off of a loan to a Houston law firm. Excluding this charge-off, net charge-offs were 0.41% of average total loans on an annualized basis. The allowance for loan losses was $12.1 million, or 1.03% of total loans at June 30, 2008, compared with $10.2 million, or 1.07% of total loans at June 30, 2007.
At June 30, 2008, nonperforming assets, including loans past due 90 days or more and still accruing, were $14.4 million, or 1.23% of total loans and investment in real estate, compared with $16.5 million, or 1.42% of total loans and investment in real estate at March 31, 2008, and $13.1 million, or 1.37% of total loans and investment in real estate at June 30, 2007. At June 30, 2008, non-accrual loans were $12.1 million, compared with $14.1 million at March 31, 2008. The decrease in non-accrual loans was due primarily to the resolution of a $6.3 million loan to a Houston law firm that was previously mentioned. Loans 90 days past due or more and still accruing were $240,000 at June 30, 2008 compared with $283,000 at March 31, 2008. Investment in real estate was $2.1 million at June 30, 2008, the same as March 31, 2008.
As of June 30, 2008, our Tier 1 risked based, total risked based, and leverage capital ratios were 12.82%, 13.87% and 10.07%, respectively, and Encore Bank was considered "well capitalized" pursuant to regulatory capital definitions.
Conference Call
A conference call will be held on Friday, July 25, 2008 at 10:00 a.m., Central time, to discuss second quarter 2008 results. A question and answer session will follow the prepared remarks. Individuals may access the call by dialing 1-877-440-5786, or access the live webcast by visiting www.encorebank.com/investorrelations.shtml
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 subsidiaries. Encore Bank operates 11 private client offices in the Greater Houston area and six in southwest Florida. Headquartered in Houston and with $1.5 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 subsidiaries 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.primenewswire.com/newsroom/prs/?pkgid=4257
This press release contains certain financial information determined by methods other than in accordance with GAAP. Encore's management believes these non-GAAP financial measures provide information useful to investors in understanding our financial results and facilitates comparisons with the performance of peers within the financial services industry. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.
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; 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; changes in the interest rate environment; the continued service of key management personnel; our ability to attract, motivate and retain key employees; 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 2007 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 As of and for the Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Earnings Statement Data: Interest income $ 20,065 $ 19,675 $ 40,597 $ 39,155 Interest expense 9,220 11,677 19,873 23,477 -------- -------- -------- -------- Net interest income 10,845 7,998 20,724 15,678 Provision for loan losses 3,777 945 5,278 1,845 -------- -------- -------- -------- Net interest income after provision for loan losses 7,068 7,053 15,446 13,833 Noninterest income 6,160 8,721 12,837 17,176 Noninterest expense 12,597 13,289 25,874 25,751 -------- -------- -------- -------- Net earnings before income taxes 631 2,485 2,409 5,258 Income tax expense 150 827 758 1,825 -------- -------- -------- -------- Net earnings $ 481 $ 1,658 $ 1,651 $ 3,433 ======== ======== ======== ======== Common Share Data: Basic earnings per share $ 0.05 $ 0.22 $ 0.17 $ 0.45 Diluted earnings per share 0.04 0.20 0.15 0.42 Book value per share 15.65 14.03 15.65 14.03 Tangible book value per share 12.30 9.60 12.30 9.60 Average common shares outstanding 9,886 7,559 9,866 7,557 Diluted average common shares outstanding 10,780 8,200 10,747 8,166 Shares outstanding at end of period 10,234 7,921 10,234 7,921 Selected Performance Ratios: Return on average assets 0.13% 0.51% 0.23% 0.53% Return on average equity 1.21% 6.07% 2.08% 6.39% Return on average tangible equity 1.54% 8.94% 2.66% 9.48% Net interest margin 3.13% 2.67% 3.03% 2.61% Efficiency ratio 72.97% 78.07% 75.98% 76.68% Noninterest income to total revenue 36.22% 52.16% 38.25% 52.28% Encore Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (Unaudited, dollars in thousands, except per share data) June 30, March 31, Dec 31, Sept 30, June 30, 2008 2008 2007 2007 2007 ---------- ---------- ---------- ---------- ---------- ASSETS Cash and due from banks $ 21,954 $ 16,608 $ 18,817 $ 19,044 $ 23,972 Interest- bearing deposits in banks 28,297 40,328 18,581 1,804 2,903 Federal funds sold and other 10,716 58,769 41,017 100,630 9,862 ---------- ---------- ---------- ---------- ---------- Cash and cash equiva- lents 60,967 115,705 78,415 121,478 36,737 Securities available- for-sale, at estimated fair value 41,508 12,108 12,207 12,205 15,298 Securities held-to- maturity, at amortized cost 107,424 123,133 134,056 140,507 148,983 Mortgages held-for- sale -- 1,928 1,396 2,244 54,004 Loans receivable 1,169,151 1,156,501 1,097,268 1,030,133 952,838 Allowance for loan losses (12,054) (11,603) (11,161) (10,711) (10,168) ---------- ---------- ---------- ---------- ---------- Net loans receiva- ble 1,157,097 1,144,898 1,086,107 1,019,422 942,670 Federal Home Loan Bank of Dallas stock, at cost 7,943 6,987 5,880 5,805 6,424 Investment in real estate 2,063 2,078 835 731 1,785 Premises and equipment, net 17,050 16,789 16,831 15,814 15,790 Goodwill 27,975 27,969 27,942 27,922 27,905 Other intangible assets, net 6,406 6,592 6,780 6,991 7,200 Cash surrender value of life insurance policies 14,398 14,256 14,091 13,951 13,818 Accrued interest receivable and other assets 17,882 16,183 16,657 16,062 16,587 ---------- ---------- ---------- ---------- ---------- $1,460,713 $1,488,626 $1,401,197 $1,383,132 $1,287,201 ========== ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest- bearing $ 123,594 $ 129,983 $ 106,382 $ 115,742 $ 106,064 Interest- bearing 931,149 981,164 934,992 916,442 914,208 ---------- ---------- ---------- ---------- ---------- Total deposits 1,054,743 1,111,147 1,041,374 1,032,184 1,020,272 Borrowings and repurchase agreements 212,257 188,845 173,395 166,359 125,753 Junior subordi- nated debentures 20,619 20,619 20,619 20,619 20,619 Accrued interest payable and other liabili- ties 12,882 8,604 8,330 8,538 9,447 ---------- ---------- ---------- ---------- ---------- Total liabili- ties 1,300,501 1,329,215 1,243,718 1,227,700 1,176,091 Commitments and contingen- cies -- -- -- -- -- Share- holders' equity: Preferred stock -- -- -- -- -- Common stock 10,240 10,158 10,128 10,124 7,925 Additio- nal paid-in capital 109,169 108,813 108,173 107,954 68,188 Retained earnings 41,414 40,933 39,763 38,060 35,812 Common stock in treasury, at cost (98) (69) (69) (69) (69) Accumu- lated other compre- hensive loss (513) (424) (516) (637) (746) ---------- ---------- ---------- ---------- ---------- Total share- holders' equity 160,212 159,411 157,479 155,432 111,110 ---------- ---------- ---------- ---------- ---------- $1,460,713 $1,488,626 $1,401,197 $1,383,132 $1,287,201 ========== ========== ========== ========== ========== Ratios and Per Share Data: Leverage ratio 10.07% 10.31% 10.47% 10.71% 7.66% Tier 1 risk-based capital ratio 12.82% 12.91% 13.59% 14.20% 10.31% Total risk-based capital ratio 13.87% 13.94% 14.65% 15.28% 11.40% Book value per share $ 15.65 $ 15.70 $ 15.56 $ 15.36 $ 14.03 Tangible book value per share 12.30 12.30 12.13 11.91 9.60 Tangible common equity to tangible assets 8.82% 8.59% 8.98% 8.94% 6.07% Encore Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited, amounts in thousands, except per share data) Three Months Ended ------------------------------------------------ June 30, March 31, Dec 31, Sept 30, June 30, 2008 2008 2007 2007 2007 -------- -------- -------- -------- -------- Interest income: Loans, including fees $ 18,238 $ 18,378 $ 18,536 $ 17,309 $ 16,346 Mortgages held-for- sale 25 32 64 1,346 1,202 Securities 1,250 1,319 1,442 1,463 1,745 Federal funds sold and other 552 803 1,198 914 382 -------- -------- -------- -------- -------- Total interest income 20,065 20,532 21,240 21,032 19,675 Interest expense: Deposits 7,123 8,542 9,731 9,947 9,525 Borrowings and repurchase agreements 1,767 1,755 1,710 1,651 1,779 Junior subordinated debentures 330 356 368 368 373 -------- -------- -------- -------- -------- Total interest expense 9,220 10,653 11,809 11,966 11,677 -------- -------- -------- -------- -------- Net interest income 10,845 9,879 9,431 9,066 7,998 Provision for loan losses 3,777 1,501 1,176 1,008 945 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 7,068 8,378 8,255 8,058 7,053 Noninterest income: Trust and investment management fees 4,660 4,407 4,533 4,501 4,268 Mortgage banking 135 54 95 1,167 2,052 Insurance commissions and fees 1,385 1,727 1,217 1,450 1,562 Real estate operations (452) 55 63 178 107 Net loss on sale of available-for-sale securities -- -- -- -- (32) Other 432 434 361 225 764 -------- -------- -------- -------- -------- Total noninterest income 6,160 6,677 6,269 7,521 8,721 Noninterest expense: Compensation 7,467 8,078 7,081 7,318 7,855 Occupancy 1,485 1,438 1,428 1,438 1,499 Equipment 487 531 553 506 497 Advertising and promotion 219 204 223 328 271 Outside data processing 717 694 883 884 904 Professional fees 739 1,156 797 401 458 Intangible amortization 188 187 209 209 211 Loss on early debt extinguishment -- -- -- -- 391 Other 1,295 989 1,193 1,405 1,203 -------- -------- -------- -------- -------- Total noninterest expense 12,597 13,277 12,367 12,489 13,289 -------- -------- -------- -------- -------- Net earnings before income taxes 631 1,778 2,157 3,090 2,485 Income tax expense 150 608 454 842 827 -------- -------- -------- -------- -------- NET EARNINGS $ 481 $ 1,170 $ 1,703 $ 2,248 $ 1,658 ======== ======== ======== ======== ======== Earnings Per Common Share: Basic $ 0.05 $ 0.12 $ 0.17 $ 0.24 $ 0.22 Diluted 0.04 0.11 0.16 0.22 0.20 Average common shares outstanding 9,886 9,846 9,808 9,347 7,559 Diluted average common shares outstanding 10,780 10,714 10,661 10,156 8,200 Six Months Ended June 30, ------------------ 2008 2007 -------- -------- Interest income: Loans, including fees $ 36,616 $ 32,154 Mortgages held-for-sale 57 2,323 Securities 2,569 4,018 Federal funds sold and other 1,355 660 -------- -------- Total interest income 40,597 39,155 Interest expense: Deposits 15,665 18,981 Borrowings and repurchase agreements 3,522 3,668 Junior subordinated debentures 686 828 -------- -------- Total interest expense 19,873 23,477 -------- -------- Net interest income 20,724 15,678 Provision for loan losses 5,278 1,845 -------- -------- Net interest income after provision for loan losses 15,446 13,833 Noninterest income: Trust and investment management fees 9,067 8,512 Mortgage banking 189 4,244 Insurance commissions and fees 3,112 3,275 Real estate operations (397) 125 Net loss on sale of available-for-sale securities -- (181) Other 866 1,201 -------- -------- Total noninterest income 12,837 17,176 Noninterest expense: Compensation 15,545 15,718 Occupancy 2,923 2,898 Equipment 1,018 1,017 Advertising and promotion 423 467 Outside data processing 1,411 1,712 Professional fees 1,895 848 Intangible amortization 375 420 Loss on early debt extinguishment -- 391 Other 2,284 2,280 -------- -------- Total noninterest expense 25,874 25,751 -------- -------- Net earnings before income taxes 2,409 5,258 Income tax expense 758 1,825 -------- -------- NET EARNINGS $ 1,651 $ 3,433 ======== ======== Earnings Per Common Share: Basic $ 0.17 $ 0.45 Diluted 0.15 0.42 Average common shares outstanding 9,866 7,557 Diluted average common shares outstanding 10,747 8,166 Encore Bancshares, Inc. and Subsidiaries AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited, dollars in thousands) Three Months Ended ------------------------------------------------------ June 30, March 31, Dec 31, Sept 30, June 30, 2008 2008 2007 2007 2007 ---------- ---------- ---------- ---------- ---------- Assets: Interest- earning assets: Loans $1,170,959 $1,119,439 $1,060,927 $ 973,641 $ 938,356 Mortgages held-for-sale 1,151 1,465 2,693 60,959 53,926 Securities 139,510 142,098 148,912 156,159 183,008 Federal funds sold and other 82,841 89,419 98,789 68,347 27,755 ---------- ---------- ---------- ---------- ---------- Total interest- earning assets 1,394,461 1,352,421 1,311,321 1,259,106 1,203,045 Less: Allowance for loan losses (11,526) (11,178) (10,754) (10,391) (9,843) Noninterest- earning assets 103,918 102,266 101,783 102,667 103,512 ---------- ---------- ---------- ---------- ---------- Total assets $1,486,853 $1,443,509 $1,402,350 $1,351,382 $1,296,714 ========== ========== ========== ========== ========== Liabilities and shareholders' equity: Interest- bearing liabilities: Interest checking $ 194,973 $ 182,483 $ 169,823 $ 169,860 $ 167,956 Money market and savings 307,047 333,241 359,217 358,732 340,950 Time deposits 466,199 434,597 399,224 375,896 373,669 ---------- ---------- ---------- ---------- ---------- Total interest- bearing deposits 968,219 950,321 928,264 904,488 882,575 Borrowings and repurchase agreements 202,229 193,855 170,141 158,203 161,698 Junior subordinated debentures 20,619 20,619 20,619 20,619 20,930 ---------- ---------- ---------- ---------- ---------- Total interest- bearing liabilities 1,191,067 1,164,795 1,119,024 1,083,310 1,065,203 ---------- ---------- ---------- ---------- ---------- Noninterest- bearing liabilities: Noninterest- bearing deposits 123,453 106,905 113,849 108,168 109,753 Other liabilities 12,015 13,313 13,428 16,128 12,127 ---------- ---------- ---------- ---------- ---------- Total liabilities 1,326,535 1,285,013 1,246,301 1,207,606 1,187,083 Shareholders' equity 160,318 158,496 156,049 143,776 109,631 ---------- ---------- ---------- ---------- ---------- Total liabilities and shareholders' equity $1,486,853 $1,443,509 $1,402,350 $1,351,382 $1,296,714 ========== ========== ========== ========== ========== Encore Bancshares, Inc. and Subsidiaries SELECTED FINANCIAL DATA (Unaudited, dollars in thousands) June 30, March 31, Dec 31, Sept 30, June 30, Loan Portfolio: 2008 2008 2007 2007 2007 ---------- ---------- ---------- ---------- ---------- Commercial: Commercial $ 127,639 $ 142,259 $ 127,583 $ 111,072 $ 113,370 Commercial real estate 298,562 291,543 277,047 249,576 225,985 Real estate construction 91,371 97,807 100,975 132,557 130,168 ---------- ---------- ---------- ---------- ---------- Total commercial 517,572 531,609 505,605 493,205 469,523 Consumer: Residential real estate first lien 256,201 264,445 271,346 264,541 265,901 Residential real estate second lien 269,409 234,623 195,583 146,719 89,378 Home equity lines 79,913 78,860 79,023 76,096 76,452 Consumer installment - indirect 18,806 21,917 25,262 29,210 33,622 Consumer other 27,250 25,047 20,449 20,362 17,962 ---------- ---------- ---------- ---------- ---------- Total consumer 651,579 624,892 591,663 536,928 483,315 ---------- ---------- ---------- ---------- ---------- Total loans receivable $1,169,151 $1,156,501 $1,097,268 $1,030,133 $ 952,838 ========== ========== ========== ========== ========== Nonperforming Assets: Nonaccrual loans $ 12,118 $ 14,131 $ 11,208 $ 8,734 $ 9,111 Accruing loans past due 90 days or more 240 283 2,183 20 2,178 Restructured loans -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total nonperforming loans 12,358 14,414 13,391 8,754 11,289 ---------- ---------- ---------- ---------- ---------- Investment in real estate 2,063 2,078 835 731 1,785 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets $ 14,421 $ 16,492 $ 14,226 $ 9,485 $ 13,074 ========== ========== ========== ========== ========== Asset Quality Ratios: Nonperforming assets to total loans and investment in real estate 1.23% 1.42% 1.30% 0.92% 1.37% Net charge-offs to average loans 1.14% 0.38% 0.27% 0.19% 0.24% Allowance for loan losses to period-end loans 1.03% 1.00% 1.02% 1.04% 1.07% Allowance for loan losses to nonperforming loans 97.54% 80.50% 83.35% 122.36% 90.07% Deposits: Noninterest- bearing deposits $ 123,594 $ 129,983 $ 106,382 $ 115,742 $ 106,064 Interest checking 186,902 190,633 179,486 169,646 172,079 Money market and savings 292,631 338,386 345,066 362,289 368,682 Time deposits less than $100,000 198,603 201,735 193,900 175,071 166,482 ---------- ---------- ---------- ---------- ---------- Core deposits 801,730 860,737 824,834 822,748 813,307 ---------- ---------- ---------- ---------- ---------- Time deposits $100,000 and greater 239,556 233,462 201,932 194,619 188,075 Brokered deposits 13,457 16,948 14,608 14,817 18,890 ---------- ---------- ---------- ---------- ---------- Total deposits $1,054,743 $1,111,147 $1,041,374 $1,032,184 $1,020,272 ========== ========== ========== ========== ========== Assets Under Management $2,736,790 $2,737,603 $2,784,617 $2,792,894 $2,683,841 ========== ========== ========== ========== ========== Encore Bancshares, Inc. and Subsidiaries ALLOWANCE FOR LOAN LOSSES (Unaudited, dollars in thousands) Three Months Ended ------------------------------------------------ June 30, March 31, Dec 31, Sept 30, June 30, 2008 2008 2007 2007 2007 -------- -------- -------- -------- -------- Allowance for loan losses at beginning of quarter $ 11,603 $ 11,161 $ 10,711 $ 10,168 $ 9,790 Charge-offs: Commercial: Commercial (2,119) (231) (20) (42) -- Commercial real estate (289) (80) -- -- -- Real estate construction (57) (9) (79) -- -- -------- -------- -------- -------- -------- Total commercial (2,465) (320) (99) (42) -- -------- -------- -------- -------- -------- Consumer: Residential real estate first lien (193) (43) (66) (124) -- Residential real estate second lien (151) (377) (44) (216) (416) Home equity lines (463) (42) (299) (25) -- Consumer installment - indirect (200) (297) (360) (307) (215) Consumer other (5) (29) (45) (13) (24) -------- -------- -------- -------- -------- Total consumer (1,012) (788) (814) (685) (655) -------- -------- -------- -------- -------- Total charge-offs (3,477) (1,108) (913) (727) (655) -------- -------- -------- -------- -------- Recoveries: Commercial: Commercial 9 11 40 6 -- Commercial real estate 6 -- -- -- -- Real estate construction -- -- -- -- -- -------- -------- -------- -------- -------- Total commercial 15 11 40 6 -- -------- -------- -------- -------- -------- Consumer: Residential real estate first lien 19 1 22 12 -- Residential real estate second lien 3 2 -- 145 7 Home equity lines -- 2 -- -- -- Consumer installment - indirect 37 6 109 76 45 Consumer other 77 27 16 23 36 -------- -------- -------- -------- -------- Total consumer 136 38 147 256 88 -------- -------- -------- -------- -------- Total recoveries 151 49 187 262 88 -------- -------- -------- -------- -------- Net charge-offs (3,326) (1,059) (726) (465) (567) -------- -------- -------- -------- -------- Provision for loan losses 3,777 1,501 1,176 1,008 945 -------- -------- -------- -------- -------- Allowance for loan losses at end of quarter $ 12,054 $ 11,603 $ 11,161 $ 10,711 $ 10,168 ======== ======== ======== ======== ======== Encore Bancshares, Inc. and Subsidiaries SEGMENT OPERATIONS (Unaudited, dollars in thousands) As of and for the Three Months Ended ---------------------------------------------------------- June 30, March 31, Dec 31, Sept 30, June 30, 2008 2008 2007 2007 2007 ---------- ---------- ---------- ---------- ---------- Banking ------- Net interest income $ 11,116 $ 10,130 $ 9,674 $ 9,315 $ 8,258 Provision for loan losses 3,777 1,501 1,176 1,008 945 Noninterest income 66 519 509 1,559 2,807 Noninterest expense 8,823 9,103 8,378 8,338 8,853 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before income taxes (1,418) 45 629 1,528 1,267 Income tax expense (benefit) (586) (15) 103 261 370 ---------- ---------- ---------- ---------- ---------- Net earnings (loss) $ (832) $ 60 $ 526 $ 1,267 $ 897 ========== ========== ========== ========== ========== Total assets at quarter end $1,472,045 $1,500,462 $1,411,934 $1,392,156 $1,292,112 ========== ========== ========== ========== ========== Wealth Management ----------- Net interest income $ 37 $ 64 $ 89 $ 82 $ 77 Noninterest income 4,660 4,407 4,533 4,501 4,268 Noninterest expense 2,725 3,070 3,042 3,137 2,988 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes 1,972 1,401 1,580 1,446 1,357 Income tax expense 709 504 460 531 483 ---------- ---------- ---------- ---------- ---------- Net earnings $ 1,263 $ 897 $ 1,120 $ 915 $ 874 ========== ========== ========== ========== ========== Total assets at quarter end $ 48,146 $ 47,444 $ 46,270 $ 45,425 $ 44,395 ========== ========== ========== ========== ========== Insurance --------- Net interest income $ 22 $ 41 $ 36 $ 37 $ 36 Noninterest income 1,458 1,732 1,222 1,460 1,637 Noninterest expense 1,049 1,104 947 1,014 1,057 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes 431 669 311 483 616 Income tax expense 154 240 73 167 232 ---------- ---------- ---------- ---------- ---------- Net earnings $ 277 $ 429 $ 238 $ 316 $ 384 ========== ========== ========== ========== ========== Total assets at quarter end $ 13,188 $ 10,143 $ 9,242 $ 9,219 $ 9,101 ========== ========== ========== ========== ========== Other ----- Net interest expense $ (330) $ (356) $ (368) $ (368) $ (373) Noninterest income (24) 19 5 1 9 Noninterest expense -- -- -- -- 391 ---------- ---------- ---------- ---------- ---------- Loss before income taxes (354) (337) (363) (367) (755) Income tax benefit (127) (121) (182) (117) (258) ---------- ---------- ---------- ---------- ---------- Net loss $ (227) $ (216) $ (181) $ (250) $ (497) ========== ========== ========== ========== ========== Total assets at quarter end $ (72,666) $ (69,423) $ (66,249) $ (63,668) $ (58,407) ========== ========== ========== ========== ========== Consolidated ------------ Net interest income $ 10,845 $ 9,879 $ 9,431 $ 9,066 $ 7,998 Provision for loan losses 3,777 1,501 1,176 1,008 945 Noninterest income 6,160 6,677 6,269 7,521 8,721 Noninterest expense 12,597 13,277 12,367 12,489 13,289 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes 631 1,778 2,157 3,090 2,485 Income tax expense 150 608 454 842 827 ---------- ---------- ---------- ---------- ---------- Net earnings $ 481 $ 1,170 $ 1,703 $ 2,248 $ 1,658 ========== ========== ========== ========== ========== Total assets at quarter end $1,460,713 $1,488,626 $1,401,197 $1,383,132 $1,287,201 ========== ========== ========== ========== ========== As of and for the Six Months Ended June 30, ---------------------- 2008 2007 ---------- ---------- Banking ------- Net interest income $ 21,246 $ 16,293 Provision for loan losses 5,278 1,845 Noninterest income 585 5,288 Noninterest expense 17,926 17,306 ---------- ---------- Earnings (loss) before income taxes (1,373) 2,430 Income tax expense (benefit) (601) 766 ---------- ---------- Net earnings (loss) $ (772) $ 1,664 ========== ========== Total assets at quarter end $1,472,045 $1,292,112 ========== ========== Wealth Management ----------------- Net interest income $ 101 $ 150 Noninterest income 9,067 8,512 Noninterest expense 5,795 6,015 ---------- ---------- Earnings before income taxes 3,373 2,647 Income tax expense 1,213 950 ---------- ---------- Net earnings $ 2,160 $ 1,697 ========== ========== Total assets at quarter end $ 48,146 $ 44,395 ========== ========== Insurance --------- Net interest income $ 63 $ 63 Noninterest income 3,190 3,353 Noninterest expense 2,153 2,039 ---------- ---------- Earnings before income taxes 1,100 1,377 Income tax expense 394 504 ---------- ---------- Net earnings $ 706 $ 873 ========== ========== Total assets at quarter end $ 13,188 $ 9,101 ========== ========== Other ----- Net interest expense $ (686) $ (828) Noninterest income (5) 23 Noninterest expense -- 391 ---------- ---------- Loss before income taxes (691) (1,196) Income tax benefit (248) (395) ---------- ---------- Net loss $ (443) $ (801) ========== ========== Total assets at quarter end $ (72,666) $ (58,407) ========== ========== Consolidated ------------ Net interest income $ 20,724 $ 15,678 Provision for loan losses 5,278 1,845 Noninterest income 12,837 17,176 Noninterest expense 25,874 25,751 ---------- ---------- Earnings before income taxes 2,409 5,258 Income tax expense 758 1,825 ---------- ---------- Net earnings $ 1,651 $ 3,433 ========== ========== Total assets at quarter end $1,460,713 $1,287,201 ========== ========== Encore Bancshares, Inc. and Subsidiaries YIELD ANALYSIS (Unaudited, dollars in thousands) For the Three Months Ended June 30, ---------------------------------------------------------- 2008 2007 ---------------------------- ----------------------------- Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate ----------- -------- ------- ----------- -------- ------- Assets: Interest- earning assets: Loans $1,170,959 $18,238 6.26% $ 938,356 $16,346 6.99% Mortgages held-for- sale 1,151 25 8.74% 53,926 1,202 8.94% Securities 139,510 1,250 3.60% 183,008 1,745 3.82% Federal funds sold and other 82,841 552 2.68% 27,755 382 5.52% ---------- ------- ---------- ------- Total interest- earning assets 1,394,461 20,065 5.79% 1,203,045 19,675 6.56% Less: Allowance for loan losses (11,526) (9,843) Noninterest- earning assets 103,918 103,512 ---------- ---------- Total assets $1,486,853 $1,296,714 ========== ========== Liabilities and shareholders' equity: Interest- bearing liabilities: Interest checking $ 194,973 $ 641 1.32% $ 167,956 $ 1,267 3.03% Money market and savings 307,047 1,363 1.79% 340,950 3,677 4.33% Time deposits 466,199 5,119 4.42% 373,669 4,581 4.92% ---------- ------- ---------- ------- Total interest- bearing deposits 968,219 7,123 2.96% 882,575 9,525 4.33% Borrowings and repurchase agreements 202,229 1,767 3.51% 161,698 1,779 4.41% Junior subordinated debentures 20,619 330 6.44% 20,930 373 7.15% ---------- ------- ---------- ------- Total interest- bearing liabili- ties 1,191,067 9,220 3.11% 1,065,203 11,677 4.40% ---------- ------- ---------- ------- Noninterest- bearing liabilities: Noninterest- bearing deposits 123,453 109,753 Other liabilities 12,015 12,127 ---------- ---------- Total liabili- ties 1,326,535 1,187,083 Shareholders' equity 160,318 109,631 ---------- ---------- Total liabilities and shareholders' equity $1,486,853 $1,296,714 ========== ========== Net interest income $10,845 $ 7,998 ======= ======= Net interest spread 2.68% 2.16% Net interest margin 3.13% 2.67% Encore Bancshares, Inc. and Subsidiaries YIELD ANALYSIS (Unaudited, dollars in thousands) For the Six months Ended June 30, ---------------------------------------------------------- 2008 2007 ---------------------------- ----------------------------- Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate ----------- -------- ------- ----------- -------- ------- Assets: Interest- earning assets: Loans $1,145,199 $36,616 6.43%$ 927,498 $32,154 6.99% Mortgages held-for- sale 1,308 57 8.76% 53,107 2,323 8.82% Securities 140,804 2,569 3.67% 207,450 4,018 3.91% Federal funds sold and other 86,130 1,355 3.16% 23,700 660 5.62% ---------- ------- ---------- ------- Total interest- earning assets 1,373,441 40,597 5.94% 1,211,755 39,155 6.52% Less: Allowance for loan losses (11,352) (9,557) Noninterest- earning assets 103,092 102,554 ---------- ---------- Total assets $1,465,181 $1,304,752 ========== ========== Liabilities, shareholders' equity and puttable common stock: Interest- bearing liabilities: Interest checking $ 188,728 $ 1,594 1.70% $ 175,608 $ 2,568 2.95% Money market and savings 320,144 3,743 2.35% 337,987 7,296 4.35% Time deposits 450,398 10,328 4.61% 374,023 9,117 4.92% ---------- ------- ---------- ------- Total interest- bearing deposits 959,270 15,665 3.28% 887,618 18,981 4.31% Borrowings and repurchase agreements 198,042 3,522 3.58% 167,147 3,668 4.43% Junior subordinated debentures 20,619 686 6.69% 20,806 828 8.03% ---------- ------- ---------- ------- Total interest- bearing liabili- ties 1,177,931 19,873 3.39% 1,075,571 23,477 4.40% ---------- ------- ---------- ------- Noninterest- bearing liabilities: Noninterest- bearing deposits 115,179 107,862 Other liabilities 12,664 12,941 ---------- ---------- Total liabili- ties 1,305,774 1,196,374 Shareholders' equity and puttable common stock 159,407 108,378 ---------- ---------- Total liabilities, shareholders' equity and puttable common stock $1,465,181 $1,304,752 ========== ========== Net interest income $20,724 $15,678 ======= ======= Net interest spread 2.55% 2.12% Net interest margin 3.03% 2.61%