##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended March 31, 2010.
|- | -----------------------------------------------------------------------------------------------------------------------------



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
 to .
|- | ---------------------------------------------------------------------------------------------------

Commission file number: 001-33598





Encore
Bancshares, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Texas                                                          |  | 76-0655696                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)
|                                                               | 
|Nine Greenway Plaza, Suite 1000, Houston, Texas                |  | 77046                            
|(Address of principal executive offices)                       |  | (Zip Code)                       
|                                                              
|(713) 787-3100                                                
|(Registrants telephone number, including area code)          





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

As of April 30, 2010, there were 11.4 million shares of common stock, $1.00 par value, issued and outstanding.









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##### Table of Contents

ENCORE BANCSHARES, INC.

TABLE OF CONTENTS



|                              |  |          |  |                                                                                                           |  |     
|----------------------------- |  | -------- |  | --------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |          |  |                                                                                                           |  | Page
|Part I. FINANCIAL INFORMATION |  |         
|                              |  | Item 1.  |  | Financial Statements                                                                                      |  |     
|                              |  |          | 
|                              |  |          |  | Consolidated Balance Sheets  March 31, 2010 and December 31, 2009
(unaudited)                            |  | 3   
|                              |  |          | 
|                              |  |          |  | Consolidated Statements of Operations  Three months ended March 31, 2010 and 2009 (unaudited)            |  | 4   
|                              |  |          | 
|                              |  |          |  | Consolidated Statement of Changes in Shareholders Equity  Three months ended March 31, 2010 (unaudited) |  | 5   
|                              |  |          | 
|                              |  |          |  | Consolidated Statements of Cash Flows  Three months ended March 31, 2010 and 2009 (unaudited)            |  | 6   
|                              |  |          | 
|                              |  |          |  | Notes to Interim Consolidated Financial Statements (unaudited)                                            |  | 7   
|                              |  |          | 
|                              |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                     |  | 23  
|                              |  |          | 
|                              |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 36  
|                              |  |          | 
|                              |  | Item 4.  |  | Controls and Procedures                                                                                   |  | 36  
|                              | 
|Part II. OTHER INFORMATION    |  | 36      
|                              |  | Item 1.  |  | Legal Proceedings                                                                                         |  | 36  
|                              |  |          | 
|                              |  | Item 1A. |  | Risk Factors                                                                                              |  | 36  
|                              |  |          | 
|                              |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                               |  | 37  
|                              |  |          | 
|                              |  | Item 3.  |  | Defaults Upon Senior Securities                                                                           |  | 37  
|                              |  |          | 
|                              |  | Item 4.  |  | Reserved                                                                                                  |  | 37  
|                              |  |          | 
|                              |  | Item 5.  |  | Other Information                                                                                         |  | 37  
|                              |  |          | 
|                              |  | Item 6.  |  | Exhibits                                                                                                  |  | 37  
|                              | 
|Signatures                    |  | 39      



2



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##### Table of Contents

Part I  Financial Information



|Item 1. | Financial Statements
|------- | --------------------

Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except per share amounts)



|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                               |  | March 31,2010 |           |   | December 31,2009 |  
|ASSETS                                                                                                                                                         |  |               |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                        |  | $             | 18,420    |   |                  | $ | 16,796    |  
|Interest-bearing deposits in banks                                                                                                                             |  |               | 237,771   |   |                  |   | 172,984   |  
|Federal funds sold and other temporary investments                                                                                                             |  |               | 1,695     |   |                  |   | 7,396     |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                      |  |               | 257,886   |   |                  |   | 197,176   |  
|Securities available-for-sale, at estimated fair value                                                                                                         |  |               | 138,495   |   |                  |   | 140,651   |  
|Securities held-to-maturity, at amortized cost                                                                                                                 |  |               | 88,454    |   |                  |   | 117,171   |  
|Loans held-for-sale                                                                                                                                            |  |               | 81,953    |   |                  |   | 1,058     |  
|Loans receivable                                                                                                                                               |  |               | 974,301   |   |                  |   | 1,078,205 |  
|Allowance for loan losses                                                                                                                                      |  |               | (25,132   | ) |                  |   | (26,501   | )
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Net loans receivable                                                                                                                                           |  |               | 949,169   |   |                  |   | 1,051,704 |  
|Federal Home Loan Bank of Dallas stock, at cost                                                                                                                |  |               | 9,578     |   |                  |   | 9,569     |  
|Investment in real estate                                                                                                                                      |  |               | 11,054    |   |                  |   | 14,639    |  
|Premises and equipment, net                                                                                                                                    |  |               | 9,327     |   |                  |   | 15,484    |  
|Cash surrender value of life insurance policies                                                                                                                |  |               | 15,489    |   |                  |   | 15,339    |  
|Goodwill                                                                                                                                                       |  |               | 35,799    |   |                  |   | 35,799    |  
|Other intangible assets, net                                                                                                                                   |  |               | 5,192     |   |                  |   | 5,351     |  
|Accrued interest receivable and other assets                                                                                                                   |  |               | 32,176    |   |                  |   | 31,414    |  
|Other assets held-for-sale                                                                                                                                     |  |               | 3,344     |   |                  |   |          |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                               |  | $             | 1,637,916 |   |                  | $ | 1,635,355 |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                           |  |               |           |   |                  |   |           |  
|Deposits:                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                            |  | $             | 156,071   |   |                  | $ | 174,102   |  
|Interest-bearing                                                                                                                                               |  |               | 802,597   |   |                  |   | 1,017,734 |  
|Deposits held-for-sale                                                                                                                                         |  |               | 242,755   |   |                  |   |          |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total deposits                                                                                                                                                 |  |               | 1,201,423 |   |                  |   | 1,191,836 |  
|Borrowings and repurchase agreements                                                                                                                           |  |               | 218,560   |   |                  |   | 220,612   |  
|Junior subordinated debentures                                                                                                                                 |  |               | 20,619    |   |                  |   | 20,619    |  
|Accrued interest payable and other liabilities                                                                                                                 |  |               | 7,094     |   |                  |   | 15,620    |  
|Other liabilities held-for-sale                                                                                                                                |  |               | 10        |   |                  |   |          |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                              |  |               | 1,447,706 |   |                  |   | 1,448,687 |  
|Commitments and contingencies                                                                                                                                  |  |               |           |   |                  |   |           |  
|Shareholders equity:                                                                                                                                          |  |               |           |   |                  |   |           |  
|Preferred stock, $1 par value, 20,000 shares authorized; 34 shares issued at March 31, 2010 and December 31, 2009;
aggregate liquidation preference of $34,222 |  |               | 29,107    |   |                  |   | 28,976    |  
|Common stock, $1 par value, 50,000 shares authorized; 11,195 shares at March 31, 2010 and 10,527 shares at December 31,
2009 issued                            |  |               | 11,195    |   |                  |   | 10,527    |  
|Additional paid-in capital                                                                                                                                     |  |               | 121,345   |   |                  |   | 116,084   |  
|Retained earnings                                                                                                                                              |  |               | 28,288    |   |                  |   | 31,095    |  
|Common stock in treasury, at cost (33 shares at March 31, 2010 and 23 shares at December 31, 2009)                                                             |  |               | (319      | ) |                  |   | (233      | )
|Accumulated other comprehensive income                                                                                                                         |  |               | 594       |   |                  |   | 219       |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                     |  |               | 190,210   |   |                  |   | 186,668   |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                               |  | $             | 1,637,916 |   |                  | $ | 1,635,355 |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  

The accompanying notes are an integral part of these statements.



3



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Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)



|                                                    |  |                              |        |   |      |   |       
|--------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------
|                                                    |  | Three MonthsEnded March 
31,
|                                                    |  | 2010                         |        |   | 2009
|Interest income:                                    |  |                              |        |   |      |   |       
|Loans, including fees                               |  | $                            | 15,694 |   |      | $ | 17,507
|Securities                                          |  |                              | 2,046  |   |      |   | 1,962 
|Federal funds sold and other temporary investments  |  |                              | 215    |   |      |   | 156   
|                                                    |  |                              |        |   |      |   |       
|Total interest income                               |  |                              | 17,955 |   |      |   | 19,625
|Interest expense:                                   |  |                              |        |   |      |   |       
|Deposits                                            |  |                              | 4,052  |   |      |   | 5,732 
|Borrowings and repurchase agreements                |  |                              | 2,116  |   |      |   | 2,116 
|Junior subordinated debentures                      |  |                              | 297    |   |      |   | 316   
|                                                    |  |                              |        |   |      |   |       
|Total interest expense                              |  |                              | 6,465  |   |      |   | 8,164 
|                                                    |  |                              |        |   |      |   |       
|Net interest income                                 |  |                              | 11,490 |   |      |   | 11,461
|Provision for loan losses                           |  |                              | 4,960  |   |      |   | 3,039 
|                                                    |  |                              |        |   |      |   |       
|Net interest income after provision for loan losses |  |                              | 6,530  |   |      |   | 8,422 
|Noninterest income:                                 |  |                              |        |   |      |   |       
|Trust and investment management fees                |  |                              | 4,618  |   |      |   | 3,749 
|Mortgage banking                                    |  |                              | 36     |   |      |   | 151   
|Insurance commissions and fees                      |  |                              | 1,639  |   |      |   | 1,610 
|Net gain on sale of available-for-sale securities   |  |                              | 99     |   |      |   |      
|Other                                               |  |                              | 517    |   |      |   | 594   
|                                                    |  |                              |        |   |      |   |       
|Total noninterest income                            |  |                              | 6,909  |   |      |   | 6,104 
|Noninterest expense:                                |  |                              |        |   |      |   |       
|Compensation                                        |  |                              | 8,551  |   |      |   | 7,514 
|Occupancy                                           |  |                              | 1,478  |   |      |   | 1,454 
|Equipment                                           |  |                              | 363    |   |      |   | 433   
|Advertising and promotion                           |  |                              | 181    |   |      |   | 216   
|Outside data processing                             |  |                              | 870    |   |      |   | 764   
|Professional fees                                   |  |                              | 921    |   |      |   | 936   
|Intangible amortization                             |  |                              | 158    |   |      |   | 171   
|FDIC assessment                                     |  |                              | 655    |   |      |   | 52    
|Foreclosed real estate expenses, net                |  |                              | 1,124  |   |      |   | 267   
|Write down of assets held-for-sale                  |  |                              | 2,535  |   |      |   |      
|Other                                               |  |                              | 1,428  |   |      |   | 930   
|                                                    |  |                              |        |   |      |   |       
|Total noninterest expense                           |  |                              | 18,264 |   |      |   | 12,737
|                                                    |  |                              |        |   |      |   |       
|Net earnings (loss) before income taxes             |  |                              | (4,825 | ) |      |   | 1,789 
|Income tax expense (benefit)                        |  |                              | (2,574 | ) |      |   | 654   
|                                                    |  |                              |        |   |      |   |       
|Net earnings (loss)                                 |  | $                            | (2,251 | ) |      | $ | 1,135 
|                                                    |  |                              |        |   |      |   |       
|Earnings (loss) available to common shareholders    |  | $                            | (2,807 | ) |      | $ | 582   
|                                                    |  |                              |        |   |      |   |       
|Earnings (loss) per common share:                   |  |                              |        |   |      |   |       
|Basic                                               |  | $                            | (0.27  | ) |      | $ | 0.06  
|Diluted                                             |  |                              | (0.27  | ) |      |   | 0.05  
|Average common shares outstanding                   |  |                              | 10,558 |   |      |   | 10,233
|Diluted average common shares outstanding           |  |                              | 10,558 |   |      |   | 10,880

The accompanying
notes are an integral part of these statements.



4



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Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

Three Months Ended March 31, 2010

(Unaudited, amounts in thousands)



|                                                                                                                                    |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ------------ | ------ | - | ------------------------ | - | ------ | ---------------- |  | - | ---------------------- | - |  | ----------------------------------- | ------ | ------------------------ |  | - | ---- | - |  | - | --- |  | - | ------- | -
|                                                                                                                                    |  | PreferredStock |        | Common Stock |        |   | AdditionalPaid-inCapital |   |        | RetainedEarnings |  |   | CommonStock inTreasury |   |  | AccumulatedOtherComprehensiveIncome |        | TotalShareholdersEquity | 
|                                                                                                                                    |  | Shares         |        |              | Amount |   |                          |   |        |                  | 
|Balance at January 1, 2010                                                                                                          |  | $              | 28,976 |              | 10,527 |   |                          | $ | 10,527 |                  |  | $ | 116,084                |   |  | $                                   | 31,095 |                          |  | $ | (233 | ) |  | $ | 219 |  | $ | 186,668 |  
|Stock-based compensation cost recognized in earnings                                                                                |  |                |       |              |       |   |                          |   |       |                  |  |   | 196                    |   |  |                                     |       |                          |  |   |     |   |  |   |    |  |   | 196     |  
|Issuance of common shares                                                                                                           |  |                |       |              | 696    |   |                          |   | 696    |                  |  |   | 5,135                  |   |  |                                     |       |                          |  |   |     |   |  |   |    |  |   | 5,831   |  
|Issuance of restricted stock                                                                                                        |  |                |       |              | 19     |   |                          |   | 19     |                  |  |   | (19                    | ) |  |                                     |       |                          |  |   |     |   |  |   |    |  |   |        |  
|Cancellation of restricted stock                                                                                                    |  |                |       |              | (47    | ) |                          |   | (47    | )                |  |   | 47                     |   |  |                                     |       |                          |  |   |     |   |  |   |    |  |   |        |  
|Purchase of treasury stock (10 shares)                                                                                              |  |                |       |              |       |   |                          |   |       |                  |  |   |                       |   |  |                                     |       |                          |  |   | (86  | ) |  |   |    |  |   | (86     | )
|Excess tax expense from stock-based compensation                                                                                    |  |                |       |              |       |   |                          |   |       |                  |  |   | (98                    | ) |  |                                     |       |                          |  |   |     |   |  |   |    |  |   | (98     | )
|Comprehensive income (loss):                                                                                                        |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   |         |  
|Net loss                                                                                                                            |  |                |       |              |       |   |                          |   |       |                  |  |   |                       |   |  |                                     | (2,251 | )                        |  |   |     |   |  |   |    |  |   | (2,251  | )
|Change in net unrealized gain on securities available-for-sale, net of deferred tax expense of $172 and reclassification
adjustment |  |                |       |              |       |   |                          |   |       |                  |  |   |                       |   |  |                                     |       |                          |  |   |     |   |  |   | 375 |  |   | 375     |  
|                                                                                                                                    |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   |         |  
|Total comprehensive loss                                                                                                            |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   | (1,876  | )
|Dividend on preferred stock and amortization of preferred stock discount                                                            |  |                | 131    |              |       |   |                          |   |       |                  |  |   |                       |   |  |                                     | (556   | )                        |  |   |     |   |  |   |    |  |   | (425    | )
|                                                                                                                                    |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   |         |  
|Balance at March 31, 2010                                                                                                           |  | $              | 29,107 |              | 11,195 |   |                          | $ | 11,195 |                  |  | $ | 121,345                |   |  | $                                   | 28,288 |                          |  | $ | (319 | ) |  | $ | 594 |  | $ | 190,210 |  
|                                                                                                                                    |  |                |        |              |        |   |                          |   |        |                  |  |   |                        |   |  |                                     |        |                          |  |   |      |   |  |   |     |  |   |         |  

The accompanying notes are an integral part of this statement.



5



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Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)



|                                                                                                  |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                  |  | Three MonthsEnded March 31, |        
|                                                                                                  |  | 2010                        |         |   | 2009 |  
|Cash flows from operating activities:                                                             |  |                             |         |   |      |   |         |  
|Net earnings (loss)                                                                               |  | $                           | (2,251  | ) |      | $ | 1,135   |  
|Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: |  |                             |         |   |      |   |         |  
|Provision for loan losses                                                                         |  |                             | 4,960   |   |      |   | 3,039   |  
|Write down of assets held-for-sale                                                                |  |                             | 2,535   |   |      |   |        |  
|Amortization of premiums and discounts, net                                                       |  |                             | 89      |   |      |   | 198     |  
|Stock-based compensation                                                                          |  |                             | 196     |   |      |   | 247     |  
|Depreciation                                                                                      |  |                             | 516     |   |      |   | 558     |  
|Write down of investment in real estate                                                           |  |                             | 552     |   |      |   |        |  
|Gain on sale of loans                                                                             |  |                             | (33     | ) |      |   | (102    | )
|Loss on sale of foreclosed real estate                                                            |  |                             | 350     |   |      |   | 98      |  
|Write off of premises and equipment                                                               |  |                             | 167     |   |      |   |        |  
|Realized gain on sale of available-for-sale securities, net                                       |  |                             | (99     | ) |      |   |        |  
|Increase in mortgages held-for-sale                                                               |  |                             | (4,417  | ) |      |   | (18,262 | )
|Proceeds from sale of mortgage loans                                                              |  |                             | 3,583   |   |      |   | 12,174  |  
|Federal Home Loan Bank of Dallas stock dividends                                                  |  |                             | (9      | ) |      |   | (13     | )
|(Increase) decrease in accrued interest receivable                                                |  |                             | 163     |   |      |   | (242    | )
|(Increase) decrease in other assets                                                               |  |                             | (1,892  | ) |      |   | 730     |  
|Decrease in accrued interest payable                                                              |  |                             | (81     | ) |      |   | (156    | )
|Decrease in other liabilities                                                                     |  |                             | (270    | ) |      |   | (673    | )
|                                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided (used) by operating activities                                                  |  |                             | 4,059   |   |      |   | (1,269  | )
|                                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                                  |  |                            
|Cash flows from investing activities:                                                             |  |                             |         |   |      |   |         |  
|Purchases of available-for-sale securities                                                        |  |                             | (49,549 | ) |      |   | (4,322  | )
|Principal collected on available-for-sale securities                                              |  |                             | 2,669   |   |      |   | 3,566   |  
|Proceeds from sales of available-for-sale securities                                              |  |                             | 49,548  |   |      |   | 3,026   |  
|Purchases of held-to-maturity securities                                                          |  |                             |        |   |      |   | (26,873 | )
|Principal collected on held-to-maturity securities                                                |  |                             | 7,921   |   |      |   | 8,085   |  
|Proceeds from calls of held-to-maturity securities                                                |  |                             | 21,000  |   |      |   |        |  
|Proceeds from sales of foreclosed real estate                                                     |  |                             | 3,512   |   |      |   | 658     |  
|Cash paid for contingency payment related to prior acquisition                                    |  |                             | (2,095  | ) |      |   |        |  
|Loan originations and principal collections, net                                                  |  |                             | 16,718  |   |      |   | 34,329  |  
|Purchases of premises and equipment                                                               |  |                             | (97     | ) |      |   | (97     | )
|                                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by investing activities                                                         |  |                             | 49,627  |   |      |   | 18,372  |  
|                                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                                  |  |                            
|Cash flows from financing activities:                                                             |  |                             |         |   |      |   |         |  
|Net increase in deposits                                                                          |  |                             | 9,587   |   |      |   | 15,799  |  
|Proceeds from long term Federal Home Loan Bank of Dallas borrowings                               |  |                             | 17,000  |   |      |   |        |  
|Repayment of long term Federal Home Loan Bank of Dallas borrowings                                |  |                             | (17,602 | ) |      |   | (12     | )
|Decrease in repurchase agreements                                                                 |  |                             | (1,450  | ) |      |   | (26,969 | )
|Payment on notes payable                                                                          |  |                             |        |   |      |   | (46     | )
|Purchase of treasury stock                                                                        |  |                             | (86     | ) |      |   | (11     | )
|Preferred dividend paid                                                                           |  |                             | (425    | ) |      |   | (331    | )
|                                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided (used) by financing activities                                                  |  |                             | 7,024   |   |      |   | (11,570 | )
|                                                                                                  |  |                             |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                                         |  |                             | 60,710  |   |      |   | 5,533   |  
|Cash and cash equivalents at beginning of period                                                  |  |                             | 197,176 |   |      |   | 118,052 |  
|                                                                                                  |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                        |  | $                           | 257,886 |   |      | $ | 123,585 |  
|                                                                                                  |  |                             |         |   |      |   |         |  
|Supplementary cash flows information:                                                             |  |                             |         |   |      |   |         |  
|Interest paid on deposits and borrowed funds                                                      |  | $                           | 6,546   |   |      | $ | 8,320   |  
|Income taxes paid                                                                                 |  |                             |        |   |      |   |        |  
|Noncash operating, investing and financing activities:                                            |  |                             |         |   |      |   |         |  
|Real estate acquired in satisfaction of loans                                                     |  |                             | 829     |   |      |   | 3,512   |  
|Issuance of common stock for acquisition                                                          |  |                             | 5,831   |   |      |   |        |  

The accompanying notes
are an integral part of these statements.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Encore Bancshares, Inc. is a financial holding company that was formed on March 28, 2000 as Guardian Holdings, Inc. and had no operations until it
acquired GSF Holding, Inc., now known as Encore Holdings, Inc. (Encore Holdings), and its wholly-owned subsidiary, Guardian Savings and Loan Association effective September 30, 2000. Guardian Savings and Loan Association, a federally chartered
savings institution, changed its name to Guardian Savings Bank effective September 28, 2000 and then to Encore Bank (the Bank) effective September 1, 2001. The Bank converted from a federal savings association to a national banking
association effective March 30, 2007 and changed its name to Encore Bank, National Association. In connection with the conversion, we became a bank holding company and Encore Holdings was merged into Encore Bancshares, Inc. As part of a
corporate reorganization following the conversion of the Bank to a national banking association, as of June 30, 2007, the Bank was merged with and into Encore Trust Company, N.A. (Encore Trust). The resulting bank, which was renamed Encore
Bank, National Association (Encore Bank), operates as a national banking association with its main office in Houston, Texas. Since the merger, the business of Encore Trust is being conducted as a division of Encore Bank. Our election to become a
financial holding company was effective July 21, 2008.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Encore Bancshares, Inc. (we, the Company or our), Encore Bank,
Linscomb & Williams, Inc. (Linscomb & Williams), and Town & Country Insurance Agency, Inc. (Town & Country). We have made all adjustments that, in our opinion, are necessary for a fair presentation of results of
the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated. The unaudited consolidated financial statements should be read in conjunction with our
annual audited consolidated financial statements and related notes. The consolidated balance sheet at December 31, 2009 was derived from audited financial statements, but does not include all disclosures required by accounting principles
generally accepted in the United States of America (US GAAP).

We must make estimates and assumptions that affect amounts reported in our
interim consolidated financial statements and in disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates.

These interim consolidated financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year
ended December 31, 2009. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or any other period.

Nature of Operations

We are primarily in the business of attracting deposits and investing these funds in loans and securities, as well as providing trust and investment
management services and property and casualty insurance products.

We provide a variety of financial services through our seventeen private
client offices located in the greater Houston area and southwest Florida, and five wealth management offices and three insurance offices in Texas. Our product offerings, places of business and service delivery are positioned to best meet the needs
of professional firms, privately-owned businesses, investors and affluent individuals.

Reclassification

In the second quarter of 2009, we reclassified net expenses of foreclosed real estate from other noninterest income to noninterest
expense for all periods presented. These reclassifications had no impact on financial condition, results of operations or equity in any of the reported periods.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



Adoption of Updates to the FASB Codification

On January 1, 2010, we adopted the following updates to the FASB Codification:

FASB Accounting Standard Update (ASU) 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASBs objective is to improve these disclosures and,
thus, increase the transparency in financial reporting. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for certain disclosures related to activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. ASU 2010-06 did not have a material effect on our consolidated financial
statements.

FASB ASU 2009-16, Transfers and Servicing (Topic 860)Accounting for Transfers of Financial Assets, which formally
codifies FASB Statement No. 166, Accounting for Transfers of Financial Assets, into the FASB ASC. ASU 2009-16 represents a revision to the provisions of former FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred
financial assets. ASU 2009-16 is effective at the start of a reporting entitys first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. Early application is not permitted. ASU 2009-16
did not have a material effect on our consolidated financial statements.

FASB ASC 810, Consolidation, improves financial reporting by
enterprises involved with variable interest entities and any significant changes in risk exposure due to that involvement as well as its effect on the entitys financial statements. FASB ASC 810 is effective as of the beginning of each
reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter, with earlier adoption prohibited.
The adoption of FASB ASC 810 did not have a material effect on our consolidated financial statements.

Descriptions of our significant
accounting policies are included in Note A to our consolidated financial statements as of and for the year ended December 31, 2009 included in our Annual Report on Form 10-K. There have been no significant changes to these policies.

Comprehensive Income

US GAAP generally requires that recognized revenue, expenses, gains and losses be included in net earnings. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net earnings, are components of comprehensive income.

The changes in the components of other comprehensive income are as follows:



|                                                                                |  |                              |      |   |      |   |       |  
|------------------------------------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                |  | Three Months EndedMarch 
31, |     
|                                                                                |  | 2010                         |      |   | 2009 |  
|Unrealized holding gains on available-for-sale securities arising during period |  | $                            | 448  |   |      | $ | 1,400 |  
|Reclassification adjustment for gains included in income                        |  |                              | 99   |   |      |   |      |  
|                                                                                |  |                              |      |   |      |   |       |  
|Net pre-tax gain recognized in other comprehensive income                       |  |                              | 547  |   |      |   | 1,400 |  
|Tax expense                                                                     |  |                              | (172 | ) |      |   | (505  | )
|                                                                                |  |                              |      |   |      |   |       |  
|Net-of-tax impact on comprehensive income                                       |  | $                            | 375  |   |      | $ | 895   |  
|                                                                                |  |                              |      |   |      |   |       |  

Pending Transactions

On March 15, 2010, Encore Bank executed two separate purchase and assumption agreements to sell certain assets and transfer certain liabilities of
its Florida operations. The first agreement is with Ovation Holdings, Inc. (Ovation Holdings) and its proposed subsidiary bank, National Bank of Southwest Florida (NBSWF), headquartered in Port Charlotte, Florida. Ovation Holdings has entered into a
definitive agreement to purchase NBSWF.



8



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



Under the terms of the first agreement, NBSWF is to assume approximately $183.9 million of deposits
associated with our four private client offices located in Naples, Ft. Myers and Sun City Center, Florida. NBSWF is also expected to purchase approximately $80.0 million of loans as well as other assets, including premises and equipment. The
purchase and assumption is subject to regulatory approval, the closing of the purchase of NBSWF by Ovation Holdings and customary closing conditions and is expected to close before the end of the third quarter 2010, although delays may occur.

The second agreement is with HomeBanc National Association (HomeBanc), headquartered in Lake Mary, Florida. Under the terms of this
agreement, HomeBanc is to assume approximately $58.9 million of deposits and certain assets associated with our two private client offices in Clearwater and Belleair Bluffs, Florida. HomeBanc has received approval from the Office of the Comptroller
of the Currency (OCC) for the acquisition. The transaction is subject to customary closing conditions and is expected to close before the end of May 2010, although delays may occur.

The deposits and loans to be acquired represent approximately 20.2% and 7.6% of our total deposits and loans at March 31, 2010, and are reflected on
our consolidated balance sheet as assets and liabilities held-for-sale as of March 31, 2010. The combined transactions are expected to result in an after-tax loss of approximately $1.0 million. We recorded a write down of $4.3 million ($1.8
million charge to the allowance for loan losses and $2.5 million write down of assets held-for-sale) in the first quarter of 2010 to adjust the assets held for sale to their agreed purchase price. The gain on the sale of the deposits with respect to
each transaction will be recognized when each transaction is completed.

NOTE B  SECURITIES AVAILABLE-FOR-SALE AND SECURITIES
HELD-TO-MATURITY

Securities available-for-sale and held-to-maturity were as follows:



|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|---------------------------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | -------
|                                                     |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|March 31, 2010                                       |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Available-for-sale:                                  |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government securities                           |  | $             | 87,479  |                      | $ | 167                   |  | $ | (265      | ) |  | $ | 87,381 
|Securities of U.S. states and political subdivisions |  |               | 646     |                      |   |                      |  |   | (3        | ) |  |   | 643    
|Mortgage-backed securities                           |  |               | 42,650  |                      |   | 853                   |  |   | (15       | ) |  |   | 43,488 
|Other securities                                     |  |               | 4,214   |                      |   | 31                    |  |   |          |   |  |   | 4,245  
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                                |  |               | 134,989 |                      |   | 1,051                 |  |   | (283      | ) |  |   | 135,757
|Marketable equity securities                         |  |               | 2,516   |                      |   | 222                   |  |   |          |   |  |   | 2,738  
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total available-for-sale securities                  |  | $             | 137,505 |                      | $ | 1,273                 |  | $ | (283      | ) |  | $ | 138,495
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Held-to-maturity:                                    |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government securities                           |  | $             | 9,951   |                      | $ | 13                    |  | $ | (37       | ) |  | $ | 9,927  
|Securities of U.S. states and political subdivisions |  |               | 11,434  |                      |   | 404                   |  |   | (26       | ) |  |   | 11,812 
|Mortgage-backed securities                           |  |               | 50,007  |                      |   | 525                   |  |   | (15       | ) |  |   | 50,517 
|Other securities                                     |  |               | 17,062  |                      |   | 2,260                 |  |   |          |   |  |   | 19,322 
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total held-to-maturity securities                    |  | $             | 88,454  |                      | $ | 3,202                 |  | $ | (78       | ) |  | $ | 91,578 
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|---------------------------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | -------
|                                                     |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|December 31, 2009                                    |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Available-for-sale:                                  |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government securities                           |  | $             | 87,258  |                      | $ | 117                   |  | $ | (554      | ) |  | $ | 86,821 
|Securities of U.S. states and political subdivisions |  |               | 646     |                      |   |                      |  |   | (31       | ) |  |   | 615    
|Mortgage-backed securities                           |  |               | 45,275  |                      |   | 926                   |  |   | (64       | ) |  |   | 46,137 
|Other securities                                     |  |               | 4,410   |                      |   | 12                    |  |   | (36       | ) |  |   | 4,386  
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total                                                |  |               | 137,589 |                      |   | 1,055                 |  |   | (685      | ) |  |   | 137,959
|Marketable equity securities                         |  |               | 2,523   |                      |   | 169                   |  |   |          |   |  |   | 2,692  
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total available-for-sale securities                  |  | $             | 140,112 |                      | $ | 1,224                 |  | $ | (685      | ) |  | $ | 140,651
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Held-to-maturity:                                    |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|U.S. Government securities                           |  | $             | 29,918  |                      | $ | 57                    |  | $ | (16       | ) |  | $ | 29,959 
|Securities of U.S. states and political subdivisions |  |               | 11,436  |                      |   | 289                   |  |   | (82       | ) |  |   | 11,643 
|Mortgage-backed securities                           |  |               | 57,868  |                      |   | 759                   |  |   | (13       | ) |  |   | 58,614 
|Other securities                                     |  |               | 17,949  |                      |   | 1,725                 |  |   |          |   |  |   | 19,674 
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        
|Total held-to-maturity securities                    |  | $             | 117,171 |                      | $ | 2,830                 |  | $ | (111      | ) |  | $ | 119,890
|                                                     |  |               |         |                      |   |                       |  |   |           |   |  |   |        



10



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



We own certain debt securities with unrealized losses as of March 31, 2010 and December 31,
2009. These securities, with unrealized losses segregated by length of impairment at year end, were as follows:



|                                                     |  |                     |  |           |        |                  |   |      |  
|---------------------------------------------------- |  | ------------------- |  | --------- | ------ | ---------------- | - | ---- | -
|Description of Securities                            |  | Number ofSecurities |  | FairValue |        | UnrealizedLosses |  
|March 31, 2010                                       |  |                     |  |           |        |                  |   |      |  
|Less than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|U.S. Government securities                           |  | 8                   |  | $         | 44,445 |                  | $ | (265 | )
|Mortgage-backed securities                           |  | 2                   |  |           | 1,775  |                  |   | (15  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total available-for-sale securities                  |  | 10                  |  | $         | 46,220 |                  | $ | (280 | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|U.S. Government securities                           |  | 1                   |  | $         | 4,963  |                  | $ | (37  | )
|Securities of U.S. states and political subdivisions |  | 1                   |  |           | 348    |                  |   | (6   | )
|Mortgage-backed securities                           |  | 1                   |  |           | 301    |                  |   | (2   | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total held-to-maturity securities                    |  | 3                   |  | $         | 5,612  |                  | $ | (45  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|More than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|Securities of U.S. states and political subdivisions |  | 1                   |  | $         | 643    |                  | $ | (3   | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Securities of U.S. states and political subdivisions |  | 1                   |  | $         | 479    |                  | $ | (20  | )
|Mortgage-backed securities                           |  | 5                   |  |           | 777    |                  |   | (13  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total held-to-maturity securities                    |  | 6                   |  | $         | 1,256  |                  | $ | (33  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|December 31, 2009                                    |  |                     |  |           |        |                  |   |      |  
|Less than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|U.S. Government securities                           |  | 6                   |  | $         | 29,054 |                  | $ | (554 | )
|Securities of U.S. states and political subdivisions |  | 1                   |  |           | 615    |                  |   | (31  | )
|Mortgage-backed securities                           |  | 2                   |  |           | 8,353  |                  |   | (64  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total available-for-sale securities                  |  | 9                   |  | $         | 38,022 |                  | $ | (649 | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|U.S. Government securities                           |  | 1                   |  | $         | 4,966  |                  | $ | (16  | )
|Securities of U.S. states and political subdivisions |  | 5                   |  |           | 1,910  |                  |   | (82  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total held-to-maturity securities                    |  | 6                   |  | $         | 6,876  |                  | $ | (98  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|More than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|Other securities                                     |  | 2                   |  | $         | 498    |                  | $ | (36  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Mortgage-backed securities                           |  | 5                   |  | $         | 789    |                  | $ | (13  | )
|                                                     |  |                     |  |           |        |                  |   |      |  

We do not believe any of the above securities are impaired due to credit quality. These securities have unrealized losses
primarily due to changes in market interest rates. We expect to recover the entire amortized cost of these securities since we do not intend to sell the securities. Additionally, it is more likely than not that we will not be required to sell these
securities before recovery of our cost basis. Accordingly, as of March 31, 2010 and December 31, 2009, we believe the impairments detailed in the table are temporary and no impairment loss has been recorded in the accompanying consolidated
statements of operations.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



The following table shows the amortized cost and estimated fair value of securities by contractual
maturity at March 31, 2010. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment schedules. Mortgage-backed securities and equity
securities are shown separately since they are not due at a single maturity date.



|                                      |  |                              |         |                            |   |               |  |           |        |  |   |       
|------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | ------------- |  | --------- | ------ |  | - | ------
|                                      |  | Available-for-SaleSecurities |         | Held-to-MaturitySecurities
|                                      |  | AmortizedCost                |         | FairValue                  |   | AmortizedCost |  | FairValue
|Within one year                       |  | $                            | 5,004   |                            | $ | 5,017         |  | $         | 4,893  |  | $ | 5,130 
|Over one year through five years      |  |                              | 24,998  |                            |   | 25,046        |  |           | 9,751  |  |   | 10,240
|After five years through ten years    |  |                              | 54,706  |                            |   | 54,484        |  |           | 7,418  |  |   | 8,915 
|Over ten years                        |  |                              | 3,765   |                            |   | 3,829         |  |           | 16,385 |  |   | 16,776
|                                      |  |                              |         |                            |   |               |  |           |        |  |   |       
|Total                                 |  |                              | 88,473  |                            |   | 88,376        |  |           | 38,447 |  |   | 41,061
|Mortgage-backed and equity securities |  |                              | 49,032  |                            |   | 50,119        |  |           | 50,007 |  |   | 50,517
|                                      |  |                              |         |                            |   |               |  |           |        |  |   |       
|Total securities                      |  | $                            | 137,505 |                            | $ | 138,495       |  | $         | 88,454 |  | $ | 91,578
|                                      |  |                              |         |                            |   |               |  |           |        |  |   |       

Mortgage-backed securities consist of federal agency pass-through
securities and have a weighted average yield of 3.24% and 3.31% at March 31, 2010 and December 31, 2009. As of March 31, 2010, the mortgage-backed securities have contractual maturities from less than a year to 2038. Accrued interest
receivable on mortgage-backed securities was $303 and $350 at March 31, 2010 and December 31, 2009.

At March 31, 2010 and
December 31, 2009, securities with a carrying value of $49,395 and $47,954 were pledged as collateral for repurchase agreements, public funds, trust deposits, and for other purposes, as required or permitted by law.

Gross realized gains were $154 and zero and gross realized losses were $55 and zero on sales of available-for-sale securities for the three months ended
March 31, 2010 and 2009.

Mortgage-backed securities previously classified as available-for-sale were transferred to held-to-maturity
during 2004. The amortized cost and fair value at the time of transfer were $127,049 and $128,782. The securities were transferred at fair value and the unrealized gain net of tax was recorded in accumulated other comprehensive income. Amortization
of unrealized gain was $115 and $82 for the three months ended March 31, 2010 and 2009.



12



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Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



NOTE C  LOANS RECEIVABLE

A summary of the major categories of loans outstanding is shown in the following table:



|                                    |  |               |           |                  |   |          
|----------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                    |  | March 31,2010 |           | December 31,2009
|Commercial:                         |  |               |           |                  |   |          
|Commercial                          |  | $             | 115,653   |                  | $ | 115,431  
|Commercial real estate              |  |               | 199,166   |                  |   | 259,480  
|Real estate construction            |  |               | 66,618    |                  |   | 87,008   
|                                    |  |               |           |                  |   |          
|Total commercial                    |  |               | 381,437   |                  |   | 461,919  
|                                    |  |              
|Consumer:                           |  |               |           |                  |   |          
|Residential real estate first lien  |  |               | 211,366   |                  |   | 222,337  
|Residential real estate second lien |  |               | 289,344   |                  |   | 291,433  
|Home equity lines                   |  |               | 68,677    |                  |   | 74,356   
|Consumer installment - indirect     |  |               | 7,339     |                  |   | 8,372    
|Consumer other                      |  |               | 16,138    |                  |   | 19,788   
|                                    |  |               |           |                  |   |          
|Total consumer                      |  |               | 592,864   |                  |   | 616,286  
|                                    |  |               |           |                  |   |          
|Loans receivable                    |  |               | 974,301   |                  |   | 1,078,205
|Loans held-for-sale                 |  |               | 81,953    |                  |   | 1,058    
|                                    |  |               |           |                  |   |          
|Total loans (1)                     |  | $             | 1,056,254 |                  | $ | 1,079,263
|                                    |  |               |           |                  |   |          



|(1) | As of March 31, 2010, loans held-for-sale are included in total loans for all periods.
|--- | --------------------------------------------------------------------------------------

Included in total loans is $2,944 and $3,123 of net deferred loan origination costs and unamortized premium and discount at March 31, 2010 and
December 31, 2009.

Changes in the allowance for loan losses were as follows:



|                                           |  |                             |        |   |      |   |        |  
|------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                           |  | Three Months EndedMarch
31, |       
|                                           |  | 2010                        |        |   | 2009 |  
|Balance at beginning of period             |  | $                           | 26,501 |   |      | $ | 25,105 |  
|Provision for loan losses                  |  |                             | 4,960  |   |      |   | 3,039  |  
|Loans charged-off                          |  |                             | (6,885 | ) |      |   | (1,653 | )
|Recoveries of loans previously charged-off |  |                             | 556    |   |      |   | 173    |  
|                                           |  |                             |        |   |      |   |        |  
|Balance at end of period                   |  | $                           | 25,132 |   |      | $ | 26,664 |  
|                                           |  |                             |        |   |      |   |        |  



13



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



The following is a summary of information pertaining to impaired, nonaccrual and restructured loans:



|                                                            |  |               |        |                  |   |       
|----------------------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                                            |  | March 31,2010 |        | December 31,2009
|Impaired loans on nonaccrual without a valuation allowance  |  | $             | 15,682 |                  | $ | 20,032
|Impaired loans on nonaccrual with a valuation allowance     |  |               | 21,389 |                  |   | 14,591
|Impaired loans still accruing without a valuation allowance |  |               | 4,861  |                  |   |      
|Impaired loans still accruing with a valuation allowance    |  |               | 512    |                  |   | 530   
|                                                            |  |               |        |                  |   |       
|Total impaired loans (1)                                    |  | $             | 42,444 |                  | $ | 35,153
|                                                            |  |               |        |                  |   |       
|Valuation allowance related to impaired loans               |  | $             | 5,790  |                  | $ | 6,264 
|                                                            |  |               |        |                  |   |       
|Total nonaccrual loans                                      |  | $             | 40,711 |                  | $ | 35,988
|                                                            |  |               |        |                  |   |       
|Total accruing loans past due 90 days or more               |  | $             |       |                  | $ | 1,489 
|                                                            |  |               |        |                  |   |       
|Restructured loans still accruing                           |  | $             | 5,710  |                  | $ | 530   
|                                                            |  |               |        |                  |   |       



|(1) | Does not include consumer loans which are not evaluated separately for impairment.
|--- | ----------------------------------------------------------------------------------

NOTE D  REGULATORY MATTERS

We and
Encore Bank are subject to various regulatory capital adequacy requirements administered by the Board of Governors of the Federal Reserve System (Federal Reserve) and the OCC. Actual and minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as of March 31, 2010 are set forth in the following table:



|                                      |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|------------------------------------- |  | ------ | ------- | ----- | ---------------------------- | - | ------ | ---------------------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                      |  | Actual |         |       | For CapitalAdequacy Purposes |   |        | To Be Categorized asWell Capitalized UnderPrompt CorrectiveAction
Provisions |       
|                                      |  | Amount |         | Ratio |                              |   | Amount |                                                                              | Ratio  |  |      | Amount |  | Ratio |        
|March 31, 2010                        |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Tier 1 capital (to average assets)    |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Tier 1 (leverage)                     |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 169,606 |       | 10.73                        | % |        | $                                                                            | 63,234 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 141,462 |       | 8.96                         |   |        |                                                                              | 63,122 |  | 4.00 |        |  | $     | 78,902  |  | 5.00  | %
|Tier 1 capital (to risk-based assets) |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 169,606 |       | 15.56                        | % |        | $                                                                            | 43,614 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A                      |  |        | 141,462 |       | 13.00                        |   |        |                                                                              | 43,517 |  | 4.00 |        |  | $     | 65,276  |  | 6.00  | %
|Total capital (to risk-based assets)  |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 183,387 |       | 16.82                        | % |        | $                                                                            | 87,228 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 155,223 |       | 14.27                        |   |        |                                                                              | 87,035 |  | 8.00 |        |  | $     | 108,794 |  | 10.00 | %

NOTE E  COMMON STOCK

In the first quarter of 2010, $2,095 in cash was paid and 696 shares of common stock were issued related to contingent consideration for
the Linscomb & Williams acquisition.

NOTE F  COMMITMENTS AND CONTINGENCIES

We are a defendant in legal actions arising from transactions conducted in the ordinary course of business. We believe, after consultation with legal
counsel, that the ultimate liability, if any, arising from such actions will not have a material adverse effect on our consolidated financial statements.



14



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



NOTE G  EARNINGS PER COMMON SHARE

The factors used in the earnings (loss) per common share computation follow:



|                                                                                           |  |                             |        |   |      |   |       
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------
|                                                                                           |  | Three Months EndedMarch
31,
|                                                                                           |  | 2010                        |        |   | 2009
|Basic:                                                                                     |  |                             |        |   |      |   |       
|Earnings (loss) available to common shareholders                                           |  | $                           | (2,807 | ) |      | $ | 582   
|Average common shares outstanding, including nonvested restricted stock                    |  |                             | 10,558 |   |      |   | 10,233
|Per Share                                                                                  |  | $                           | (0.27  | ) |      | $ | 0.06  
|Diluted:                                                                                   |  |                             |        |   |      |   |       
|Average common shares outstanding                                                          |  |                             | 10,558 |   |      |   | 10,233
|Add: Net effect of the assumed exercise of stock options                                   |  |                             |       |   |      |   |      
|Contingent share-based consideration                                                       |  |                             |       |   |      |   | 647   
|                                                                                           |  |                             |        |   |      |   |       
|Diluted average common shares outstanding                                                  |  |                             | 10,558 |   |      |   | 10,880
|Per Share                                                                                  |  | $                           | (0.27  | ) |      | $ | 0.05  
|Anti-dilutive stock options and warrants not included in treasury stock method computation |  |                             | 1,343  |   |      |   | 1,359 
|Preferred dividends deducted from net earnings                                             |  |                             | 556    |   |      |   | 553   

No dividends have been declared on our
common stock.

NOTE H  FAIR VALUE OF ASSETS AND LIABILITIES

We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale
are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis such as certain loans, goodwill and other intangible assets and investment in real
estate. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write downs of individual assets.

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, we group our financial assets and financial liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:



| |  |  | Level 1  Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained
from readily available pricing sources for market transactions involving identical assets or liabilities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing
services for identical or comparable assets or liabilities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted
cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or
liabilities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



The tables below present the balances of assets measured at fair value on a recurring basis as of March
31, 2010 and December 31, 2009:



|                                                     |  |                |         |         |   |         |  |   |       
|---------------------------------------------------- |  | -------------- | ------- | ------- | - | ------- |  | - | ------
|                                                     |  | March 31, 2010
|Description                                          |  | Total          |         | Level 1 |   | Level 2
|U.S. Government securities                           |  | $              | 87,381  |         | $ | 39,528  |  | $ | 47,853
|Securities of U.S. states and political subdivisions |  |                | 643     |         |   |        |  |   | 643   
|Mortgage-backed securities                           |  |                | 43,488  |         |   |        |  |   | 43,488
|Other securities                                     |  |                | 6,983   |         |   | 6,983   |  |   |      
|                                                     |  |                |         |         |   |         |  |   |       
|Total available-for-sale securities                  |  | $              | 138,495 |         | $ | 46,511  |  | $ | 91,984
|                                                     |  |                |         |         |   |         |  |   |       



|                                                     |  |                   |         |         |   |         |  |   |       
|---------------------------------------------------- |  | ----------------- | ------- | ------- | - | ------- |  | - | ------
|                                                     |  | December 31, 2009
|Description                                          |  | Total             |         | Level 1 |   | Level 2
|U.S. Government securities (1)                       |  | $                 | 86,821  |         | $ | 86,821  |  | $ |      
|Securities of U.S. states and political subdivisions |  |                   | 615     |         |   |        |  |   | 615   
|Mortgage-backed securities                           |  |                   | 46,137  |         |   |        |  |   | 46,137
|Other securities (2)                                 |  |                   | 3,395   |         |   | 3,395   |  |   |      
|                                                     |  |                   |         |         |   |         |  |   |       
|Total available-for-sale securities                  |  | $                 | 136,968 |         | $ | 90,216  |  | $ | 46,752
|                                                     |  |                   |         |         |   |         |  |   |       



|(1) | In preparing these financial statements, we determined that $52,930 of U.S. Government securities had been misclassified as Level 1 as of December 31, 2009 and should
have been reported as Level 2 since these securities were priced based on similar securities in an inactive market. We had originally reported these securities in Level 1 with Treasury securities which trade in more active markets. Therefore, we
have corrected the classifications as of March 31, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes cost-basis equity securities of $3,683.
|--- | ------------------------------------------------

At March 31, 2010, the fair value of our investment in available-for-sale Level 2 U.S. Government securities was $47,853. The investments were comprised
of $45,019 fixed-rate U.S. agency securities with a weighted average coupon rate of 2.5% and a weighted average life of 1.7 years and $2,834 variable-rate U.S. agency securities with a weighted average coupon rate of 3.3% and a weighted average life
of 5.1 years. To estimate their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.

At March 31, 2010, the fair value of our investment in available-for-sale Level 2 securities of U.S. states and political subdivisions was $643. The
investment was comprised of one security issued by a county in Texas, with a coupon rate of 4.5% and a maturity of 18.5 years. To estimate its value, we used a third party broker to value the security using standard market matrix pricing for similar
securities.

At March 31, 2010, the fair value of our investment in available-for-sale Level 2 mortgage-backed securities was $43,488. These
investments were comprised of $22,880 fixed-rate GNMA and FNMA backed securities with a weighted average coupon rate of 4.3% and a weighted average life of 3.3 years and $20,608 variable-rate GNMA and FNMA backed securities with a weighted average
coupon rate of 3.2% and a weighted average life of 3.9 years. The underlying loans for these securities are residential mortgages located in various states across the country, with no significant concentration in any particular state. To estimate
their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.



16



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



For assets measured at fair value on a nonrecurring basis during 2010 that were still held on the
balance sheet at March 31, 2010, the following table provides the level of valuation assumptions used to determine the amount of adjustment and the carrying value of the related individual assets at period end:



|                                |  |       |         |         |   |         |  |                                                 |        |  |   |      
|------------------------------- |  | ----- | ------- | ------- | - | ------- |  | ----------------------------------------------- | ------ |  | - | -----
|Description                     |  | Total |         | Level 2 |   | Level 3 |  | Losses for theThree 
Months EndedMarch 31, 2010
|Loans held-for-sale             |  | $     | 80,028  |         | $ | 80,028  |  | $                                               |       |  | $ | 1,792
|Loans                           |  |       | 29,875  |         |   |        |  |                                                 | 29,875 |  |   | 3,503
|Investment in real estate       |  |       | 11,054  |         |   |        |  |                                                 | 11,054 |  |   | 552  
|Long-lived assets held-for-sale |  |       | 3,019   |         |   |        |  |                                                 | 3,019  |  |   | 2,535
|                                |  |       |         |         |   |         |  |                                                 |        |  |   |      
|Total                           |  | $     | 123,976 |         | $ | 80,028  |  | $                                               | 43,948 |  | $ | 8,382
|                                |  |       |         |         |   |         |  |                                                 |        |  |   |      

During the quarter ended March 31, 2010, we reclassified certain loans
as held-for-sale in connection with the anticipated sale of our banking operations in Florida. The loans were written down to their purchase price of $80,028, resulting in an impairment charge of $1,792 against the allowance for loan losses. Also in
connection with the anticipated Florida transactions, we wrote down certain branch facilities to their purchase price, resulting in an impairment charge of $2,535, which was included in earnings for the period.

We also wrote down certain loans receivable that are collateralized by real estate to their appraised value less costs to sell resulting in an impairment
charge of $3,503 against the allowance for loan losses. Additionally, we wrote down certain foreclosed real estate properties to their appraised value less costs to sell resulting in an impairment charge of $552, which was included in earnings for
the period.

For assets measured at fair value on a nonrecurring basis during 2009 that were still held on the balance sheet at December 31,
2009, the following table provides the level of valuation assumptions used to determine the amount of adjustment and the carrying value of the related individual assets at period end:



|                                 |  |       |        |         |   |                                            |  |   |      
|-------------------------------- |  | ----- | ------ | ------- | - | ------------------------------------------ |  | - | -----
|Description                      |  | Total |        | Level 2 |   | Losses for theYear 
EndedDecember 31, 2009
|Loans (1)(2)                     |  | $     | 33,362 |         | $ | 33,362                                     |  | $ | 3,572
|Investment in real estate (1)(3) |  |       | 14,639 |         |   | 14,639                                     |  |   | 271  
|                                 |  |       |        |         |   |                                            |  |   |      
|Total                            |  | $     | 48,001 |         | $ | 48,001                                     |  | $ | 3,843
|                                 |  |       |        |         |   |                                            |  |   |      



|(1) | In preparing these financial statements, we determined that as of December 31, 2009, certain loans totaling $10,128 whose collateral values exceeded the carrying
value of the loan, although evaluated for impairment, should not have been included in loans carried at fair value. The remaining $23,234 loans should have been reported in Level 3 instead of Level 2. In addition, as of December 31, 2009,
investment in real estate totaling $14,639 should have been reported in Level 3 instead of Level 2. These loans and investment in real estate were appraised with methods other than the market sales approach (i.e. the income or cost approach which
may use significant unobservable inputs), the appraiser made significant adjustments to comparable sales, or management may have applied a significant adjustment to the value. Therefore, we have corrected the classifications as of March 31,
2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents carrying value of loans and related write downs for which adjustments are based on the appraised value of the collateral.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents carrying value of foreclosed assets measured at fair value upon initial recognition or subsequent impairment.
|--- | ------------------------------------------------------------------------------------------------------------------------

Under FASB ASC 820, we base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value
hierarchy in FASB ASC 820.



17



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



Fair value measurements where there exists limited or no observable market data and, therefore, are
based primarily upon our own estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results cannot be determined
with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, that could significantly affect the results of current or future values.

The following
table summarizes the carrying values and estimated fair values of financial instruments:



|                                       |  |                |         |                     |   |                |  |                     |           |  |   |          
|-------------------------------------- |  | -------------- | ------- | ------------------- | - | -------------- |  | ------------------- | --------- |  | - | ---------
|                                       |  | March 31, 2010 |         | December 31, 2009  
|                                       |  | CarryingAmount |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Financial assets:                      |  |                |         |                     |   |                |  |                     |           |  |   |          
|Cash and cash equivalents              |  | $              | 257,886 |                     | $ | 257,886        |  | $                   | 197,176   |  | $ | 197,176  
|Securities available-for-sale          |  |                | 138,495 |                     |   | 138,495        |  |                     | 140,651   |  |   | 140,651  
|Securities held-to-maturity            |  |                | 88,454  |                     |   | 91,578         |  |                     | 117,171   |  |   | 119,890  
|Loans held-for-sale                    |  |                | 81,953  |                     |   | 81,953         |  |                     | 1,058     |  |   | 1,058    
|Loans receivable, net                  |  |                | 949,169 |                     |   | 969,472        |  |                     | 1,051,704 |  |   | 1,073,467
|Federal Home Loan Bank of Dallas stock |  |                | 9,578   |                     |   | 9,578          |  |                     | 9,569     |  |   | 9,569    
|Accrued interest receivable            |  |                | 5,327   |                     |   | 5,327          |  |                     | 5,490     |  |   | 5,490    
|                                       |  |                |         |                    
|Financial liabilities:                 |  |                |         |                     |   |                |  |                     |           |  |   |          
|Deposits                               |  | $              | 958,668 |                     | $ | 958,758        |  | $                   | 1,191,836 |  | $ | 1,192,584
|Deposits held-for-sale                 |  |                | 242,755 |                     |   | 242,778        |  |                     |          |  |   |         
|Borrowings and repurchase agreements   |  |                | 218,560 |                     |   | 225,192        |  |                     | 220,612   |  |   | 226,775  
|Accrued interest payable               |  |                | 1,146   |                     |   | 1,146          |  |                     | 1,227     |  |   | 1,227    
|Junior subordinated debentures         |  |                | 20,619  |                     |   | 21,439         |  |                     | 20,619    |  |   | 21,400   
|Accrued contingent consideration       |  |                |        |                     |   |               |  |                     | 7,926     |  |   | 7,926    



18



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



The following is a description of valuation methodologies used for assets and liabilities recorded at
fair value, non-financial assets and non-financial liabilities, and for estimating fair value for financial instruments not recorded at fair value (FASB ASC 820 disclosures).

Cash and Cash Equivalents

The carrying
amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets fair values.

Securities

Fair value measurement of securities is based upon quoted prices, if available. If quoted prices are not available, fair values are
measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows. Securities available-for-sale are recorded at fair value on a recurring basis.

Loans Receivable

We do not record loans
at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for FASB ASC 820 disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments to
loans to reflect (1) partial write downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. The fair value estimates for FASB ASC 820-10-35
purposes differentiate loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity.

The fair value of commercial and commercial real estate loans is calculated by discounting contractual cash flows using discount rates that reflect our
current pricing for loans with similar characteristics and remaining maturity.

For real estate 1-4 family first and junior lien mortgages,
fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates, using discount rates based on current industry pricing or our own estimate of an appropriate risk-adjusted discount rate for loans of similar size,
type, credit quality, remaining maturity and repricing characteristics.

For all other consumer loans, the fair value is generally calculated
by discounting the contractual cash flows, adjusted for prepayment estimates, based on the current rates we offer for loans with similar characteristics.

The fair value of significant nonperforming loans is based on recent external appraisals. Where appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the credit risk associated with those cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower
information.

Loans Held-for-Sale

Loans held-for-sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on commitments on hand from investors
or prevailing market prices. As such, we classify loans subjected to nonrecurring fair value adjustments as Level 2.

Federal Home
Loan Bank of Dallas Stock

The fair value of FHLB stock is estimated to be equal to its carrying amount as reported in the accompanying
balance sheet, given it is not a publicly traded equity security, it has an adjustable dividend rate, and all transactions in the stock are executed at the stated par value.



19



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



Investment in Real Estate

Investment in real estate is primarily foreclosed properties securing residential loans and commercial real estate. Foreclosed assets are adjusted to fair
value less costs to sell upon transfer of the loans to investment in real estate. Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or
appraised values of the property and, accordingly, we classify foreclosed assets as Level 3.

Goodwill and Other Intangible Assets

We assess goodwill for impairment annually, and more frequently in certain circumstances. We assess goodwill for impairment on a reporting
unit level using appropriate weighted market and income approaches. Impairment exists when the carrying amount of the goodwill exceeds its implied fair value. We recognize impairment losses as a charge to noninterest expense and an adjustment to the
carrying value of the goodwill asset. Subsequent reversals of goodwill impairment are prohibited.

We amortize client relationship intangibles
on an accelerated basis based on useful lives of 15 to 20 years. We review these intangibles for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum
of undiscounted estimated future net cash flows is less than the carrying value of the asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value.

Deposits

The fair value of deposits
with no stated maturity, such as noninterest-bearing checking accounts and money market accounts, is equal to the amount payable upon demand as of March 31, 2010 and December 31, 2009. The fair value of certificates of deposit is based on
the lower of redemption or discounted value of contractual cash flows. Discount rates for certificates of deposit are estimated using current market rates.

Borrowings and Repurchase Agreements

The fair values of our borrowings and repurchase agreements are estimated using discounted cash flow analyses based on our current incremental borrowing
rates for similar types of borrowing arrangements.

Fair value of FHLB advances is estimated using the rates currently being offered for
advances with similar remaining maturities.

Junior Subordinated Debentures

The fair values of our junior subordinated debentures with floating interest rates are estimated to be equal to their carrying value reported in the
consolidated balance sheets since these instruments reprice periodically according to prevailing market interest rates. The discounted cash flow method is used to estimate the fair value of our fixed rate debentures. Contractual cash flows are
discounted using rates currently offered for new debentures with similar remaining maturities.

Accrued Interest

The carrying amounts of accrued interest are considered to approximate their fair values due to their short-term nature.

Accrued Contingent Consideration

The
fair value of the accrued contingent consideration is estimated to be equal to its carrying amount as reported in the accompanying balance sheet, as the amount of the liability is fixed and was paid in the first quarter of 2010.

Unrecognized Financial Instruments

The
fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the counterparties. For
fixed-



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Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

We have reviewed the unfunded portion of commitments to extend credit as well as standby and other letters of credit, and have determined that the fair
value of such financial instruments is not material.

Nonfinancial Instruments

We have not considered the value of our long term relationships with depositors, commonly known as core deposit intangibles, when estimating the fair
value of deposit liabilities. These intangibles are considered to be separate intangible assets that are not financial instruments. Nonetheless, financial institutions core deposits have typically traded at premiums to their book values under
both historical and current market conditions.

NOTE I  SEGMENT INFORMATION

We have three lines of business which are banking, wealth management and insurance, that are delineated by the products and services that each segment
offers. The segments are managed separately with different clients, employees, systems, risks and marketing strategies. Banking includes our commercial and private client banking services. Wealth management provides personal wealth management
services through Encore Trust, a division of Encore Bank, and Linscomb & Williams, and insurance includes the selling of property and casualty insurance products by Town & Country.

The accounting policies of each line of business are the same as those described in the summary of significant accounting policies included in Note A to
our consolidated financial statements as of and for the year ended December 31, 2009 included in our Annual Report on Form 10-K. Revenues, expenses, and assets are recorded by each line of business, and we separately review financial
information. In addition to direct expenses, each line of business was allocated certain general corporate expenses such as executive administration, accounting, internal audit, and human resources based on the average asset level of the operating
segment. Activities that are not directly attributable to the reportable operating segments, including the elimination of intercompany transactions, are presented under Other.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

March 31, 2010 and 2009

(Unaudited, amounts in thousands, except per share amounts)



Financial results by operating segment were as follows:



|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|----------------------------------- |  | ------- | --------- | - | ---------------- | - | --------- |  | ----- | ----- |  | ------------ | ------- | - |  | - | --------- | -
|                                    |  | Banking |           |   | WealthManagement |   | Insurance |  | Other |       |  | Consolidated |        
|Three months ended March 31, 2010   |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|                                    |  |         |           |   |                 
|Net interest income (expense)       |  | $       | 11,742    |   |                  | $ | 40        |  | $     | 5     |  | $            | (297    | ) |  | $ | 11,490    |  
|Provision for loan losses           |  |         | 4,960     |   |                  |   |          |  |       |      |  |              |        |   |  |   | 4,960     |  
|Noninterest income                  |  |         | 647       |   |                  |   | 4,618     |  |       | 1,644 |  |              |        |   |  |   | 6,909     |  
|Noninterest expense                 |  |         | 13,675    |   |                  |   | 3,562     |  |       | 1,027 |  |              |        |   |  |   | 18,264    |  
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |         | (6,246    | ) |                  |   | 1,096     |  |       | 622   |  |              | (297    | ) |  |   | (4,825    | )
|Income tax expense (benefit)        |  |         | (3,076    | ) |                  |   | 388       |  |       | 218   |  |              | (104    | ) |  |   | (2,574    | )
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $       | (3,170    | ) |                  | $ | 708       |  | $     | 404   |  | $            | (193    | ) |  | $ | (2,251    | )
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Total assets at March 31, 2010      |  | $       | 1,645,468 |   |                  | $ | 61,316    |  | $     | 8,053 |  | $            | (76,921 | ) |  | $ | 1,637,916 |  
|                                    |  |         |           |   |                 
|Three months ended March 31, 2009   |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|                                    |  |         |           |   |                 
|Net interest income (expense)       |  | $       | 11,736    |   |                  | $ | 38        |  | $     | 3     |  | $            | (316    | ) |  | $ | 11,461    |  
|Provision for loan losses           |  |         | 3,039     |   |                  |   |          |  |       |      |  |              |        |   |  |   | 3,039     |  
|Noninterest income                  |  |         | 661       |   |                  |   | 3,749     |  |       | 1,694 |  |              |        |   |  |   | 6,104     |  
|Noninterest expense                 |  |         | 8,606     |   |                  |   | 3,098     |  |       | 1,033 |  |              |        |   |  |   | 12,737    |  
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |         | 752       |   |                  |   | 689       |  |       | 664   |  |              | (316    | ) |  |   | 1,789     |  
|Income tax expense (benefit)        |  |         | 291       |   |                  |   | 243       |  |       | 233   |  |              | (113    | ) |  |   | 654       |  
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $       | 461       |   |                  | $ | 446       |  | $     | 431   |  | $            | (203    | ) |  | $ | 1,135     |  
|                                    |  |         |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Total assets at March 31, 2009      |  | $       | 1,584,698 |   |                  | $ | 48,648    |  | $     | 7,695 |  | $            | (63,317 | ) |  | $ | 1,577,724 |  



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Special Cautionary Notice Regarding Forward-Looking Statements

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute
forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and involve a number of risks and uncertainties, many of which
are beyond our control. The words believe, may, should, anticipate, estimate, expect, intend, continue, would, could,
hope, might, assume, objective, seek, plan, strive and similar words, or the negatives of these words, are intended to identify forward-looking statements.

Many possible events or factors could affect our future financial results and performance and could cause our actual results to differ
materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the other factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2009, factors that could contribute to those differences include, but are not limited to:



| |  |  | changes in the strength of general business or economic conditions, either nationally, regionally or in the local markets we serve, may result in,
among other things, a deterioration of credit quality or a reduced demand for credit or a decline in wealth management fees;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | volatility and disruption in national and international financial markets;
| | - |  | --------------------------------------------------------------------------



| |  |  | changes in the interest rate environment, which may reduce our margins or impact the value of changes in market rates and prices and may impact the
value of securities, loans, deposits and other financial instruments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a
percentage of the total loan portfolio;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure to complete the pending transactions for the sale of our Florida operations;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the concentration of our loan portfolio in loans collateralized by real estate;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our level of commercial real estate and commercial loans;
| | - |  | ---------------------------------------------------------



| |  |  | incorrect assumptions underlying the establishment of and provisions made to the allowance for loan losses;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legislative or regulatory developments including changes in laws concerning taxes, banking, securities, investment advisory, trust, insurance and other
aspects of the financial services industry;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased FDIC assessments or the imposition of special assessments;
| | - |  | --------------------------------------------------------------------



| |  |  | government intervention in the U.S. financial system;
| | - |  | -----------------------------------------------------



| |  |  | the continued service of key management personnel;
| | - |  | --------------------------------------------------



| |  |  | our ability to attract, motivate and retain key employees;
| | - |  | ----------------------------------------------------------



| |  |  | changes in the availability of funds resulting in increased costs or reduced liquidity;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | factors that increase competitive pressure among financial services organizations, including product and pricing pressures;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | risks associated with our investment in Linscomb & Williams;
| | - |  | ------------------------------------------------------------



| |  |  | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand and grow our business and operations, including the establishment of additional private client offices and acquisition of
additional banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fiscal and governmental policies of the United States federal government.
| | - |  | -------------------------------------------------------------------------

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences
between assumptions or bases and actual results can be material. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-Q. These statements speak only as of the date of
this report (or an earlier date to the extent applicable). We undertake no obligation to update publicly such forward-looking statements in light of new information or future events.



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##### Table of Contents

Overview

Encore Bancshares, Inc. is a bank holding company and wealth management organization that provides banking, investment management, financial planning and
insurance services to professional firms, privately-owned businesses, investors and affluent individuals. We are headquartered in Houston, Texas and currently manage, through our primary subsidiary, Encore Bank, National Association (Encore Bank),
eleven private client offices in the greater Houston market and six private client offices in southwest Florida. We also operate five wealth management offices and three insurance offices in Texas. As of March 31, 2010, we reported, on a
consolidated basis, total assets of $1.6 billion, total loans of $1.1 billion, total deposits of $1.2 billion, shareholders equity of $190.2 million and $2.8 billion in assets under management.

In the second quarter of 2009, we reclassified net expenses of foreclosed real estate from other noninterest income to noninterest expense for all
periods presented. These reclassifications had no impact on financial condition, results of operations or equity in any of the reported periods.

Pending Transactions

On March 15, 2010, Encore Bank executed two separate purchase and assumption agreements to sell certain assets and transfer certain liabilities of
its Florida operations. The first agreement is with Ovation Holdings, Inc. (Ovation Holdings) and its proposed subsidiary bank, National Bank of Southwest Florida (NBSWF), headquartered in Port Charlotte, Florida. Ovation Holdings has entered into a
definitive agreement to purchase NBSWF.

Under the terms of the first agreement, NBSWF is to assume approximately $183.9 million of deposits
associated with our four private client offices located in Naples, Ft. Myers and Sun City Center, Florida. NBSWF is also expected to purchase approximately $80.0 million of loans as well as other assets, including premises and equipment. The
purchase and assumption is subject to regulatory approval, the closing of the purchase of NBSWF by Ovation Holdings and customary closing conditions and is expected to close before the end of the third quarter 2010, although delays may occur.

The second agreement is with HomeBanc National Association (HomeBanc), headquartered in Lake Mary, Florida. Under the terms of this
agreement, HomeBanc is to assume approximately $58.9 million of deposits and certain assets associated with our two private client offices in Clearwater and Belleair Bluffs, Florida. HomeBanc has received approval from the Office of the Comptroller
of the Currency (OCC) for the acquisition. The transaction is subject to customary closing conditions and is expected to close before the end of May 2010, although delays may occur.

The deposits and loans to be acquired represent approximately 20.2% and 7.6% of our total deposits and loans at March 31, 2010, and are reflected on our
consolidated balance sheet as assets and liabilities held-for-sale as of March 31, 2010. The combined transactions are expected to result in an after-tax loss of approximately $1.0 million. We recorded a write down of $4.3 million ($1.8 million
charge to the allowance for loan losses and $2.5 million write down of assets held-for-sale) in the first quarter of 2010 to adjust the assets held for sale to their agreed purchase price. The gain on the sale of the deposits with respect to each
transaction will be recognized when each transaction is completed.

Critical Accounting Policies

We have made no changes in our methods of application of our critical accounting policies from the information previously disclosed in the Critical
Accounting Policies section of Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2009.

This report contains certain financial information determined by methods other than in accordance with US GAAP. These measures include net interest
income, net interest spread and net interest margin on a taxable-equivalent basis, which is common practice in the banking industry. We have included in this report information related to these non-GAAP financial measures for the applicable periods
presented. We believe these non-GAAP financial measures provide information useful to investors in understanding our financial results and believe that its presentation, together with the accompanying reconciliation, 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. 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.



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Results of Operations

Net loss for the quarter ended March 31, 2010 was $2.3 million, or $0.27 per diluted common share, compared with $1.1 million, or $0.05 per diluted
common share, for the quarter ended March 31, 2009. The decrease in earnings was due primarily to a $4.3 million write down of Florida assets held-for-sale, including $1.8 million charged to the allowance for loan losses.

We posted a return on average common equity of (7.20)% and 1.49%, a return on average assets of (0.56)% and 0.29%, and an efficiency ratio of 85.09% and
71.54% for the quarters ended March 31, 2010 and 2009. The efficiency ratio is calculated by dividing total noninterest expense (excluding amortization of intangibles and write down of assets held-for-sale) by the sum of net interest income and
noninterest income (excluding gains or losses on sales of securities).

Net Interest Income

Our operating results are significantly impacted by net interest income, which represents the amount by which interest income 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 a key source of our earnings. Interest rate fluctuations, as well as changes in
the amount and type of earning assets and liabilities, combine to affect net interest income.

Net interest income on a fully
taxable-equivalent basis (TE) was $11.6 million for the three months ended March 31, 2010, an increase of $79,000, or 0.7%, compared with the first quarter of 2009. Average earning assets grew $21.4 million, or 1.4%, due primarily to growth in
securities and temporary investments. The net interest margin (TE) fell 2 basis points to 3.11% for the same comparison period, due primarily to a decrease in loans and an increase in lower yielding temporary investments. In addition, average
noninterest-bearing deposits were $164.0 million for the first quarter of 2010, a $23.2 million, or 16.5%, increase compared with the same period of 2009.

The following table sets forth for the periods indicated an analysis of net interest income by each major category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts and the average rate earned or paid. The table also sets forth the average rate earned on total interest-earning assets, the average rate paid
on total interest-bearing liabilities and the net interest margin for the same periods. All balances are daily average balances and nonaccrual loans were included in the average loans with a zero yield for the purpose of calculating the rate earned
on total loans. To give effect to our tax-exempt securities and loans, taxable-equivalent adjustments have been made with respect to these assets.



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##### Table of Contents

Taxable-Equivalent Yield Analysis



|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|----------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------- | - | ----------------- |  | ---- | ------------------------- |  | - | ---------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                                |  | Three Months Ended March 31, |          
|                                                |  | 2010                         |           |   | 2009                   |  
|                                                |  | AverageOutstandingBalance    |           |   | InterestIncome/Expense |   | AverageYield/Rate |  |      | AverageOutstandingBalance |  |   | InterestIncome/Expense |   | AverageYield/Rate |  
|                                                |  | (dollars in thousands)       |          
|Assets:                                         |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Interest-earning assets:                        |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Loans (1)                                       |  | $                            | 979,171   |   |                        | $ | 14,382            |  | 5.96 | %                         |  | $ | 1,208,697              |   |                   | $ | 17,544 |  | 5.89 | %
|Loans held-for-sale (2)                         |  |                              | 85,204    |   |                        |   | 1,378             |  | 6.56 |                           |  |   | 1,391                  |   |                   |   | 28     |  | 8.16 |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total loans (1)                                 |  |                              | 1,064,375 |   |                        |   | 15,760            |  | 6.00 |                           |  |   | 1,210,088              |   |                   |   | 17,572 |  | 5.89 |  
|Securities (1)                                  |  |                              | 230,390   |   |                        |   | 2,106             |  | 3.71 |                           |  |   | 187,953                |   |                   |   | 1,973  |  | 4.26 |  
|Federal funds sold and other                    |  |                              | 220,019   |   |                        |   | 215               |  | 0.40 |                           |  |   | 95,314                 |   |                   |   | 156    |  | 0.66 |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total interest-earning assets (1)               |  |                              | 1,514,784 |   |                        |   | 18,081            |  | 4.84 |                           |  |   | 1,493,355              |   |                   |   | 19,701 |  | 5.35 |  
|Less: Allowance for loan losses                 |  |                              | (26,672   | ) |                        |   |                   |  |      |                           |  |   | (25,181                | ) |                   |   |        |  |      |  
|Noninterest-earning assets                      |  |                              | 126,284   |   |                        |   |                   |  |      |                           |  |   | 111,018                |   |                   |   |        |  |      |  
|Noninterest-earning assets held-for-sale (2)    |  |                              | 7,377     |   |                        |   |                   |  |      |                           |  |   |                       |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total assets                                    |  | $                            | 1,621,773 |   |                        |   |                   |  |      |                           |  | $ | 1,579,192              |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |  
|Liabilities and shareholders equity:           |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Interest-bearing liabilities:                   |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Interest checking                               |  | $                            | 153,023   |   |                        | $ | 122               |  | 0.32 | %                         |  | $ | 181,976                |   |                   | $ | 213    |  | 0.47 | %
|Money market and savings                        |  |                              | 240,292   |   |                        |   | 506               |  | 0.85 |                           |  |   | 228,402                |   |                   |   | 678    |  | 1.20 |  
|Time deposits                                   |  |                              | 400,451   |   |                        |   | 2,414             |  | 2.44 |                           |  |   | 555,006                |   |                   |   | 4,841  |  | 3.54 |  
|Interest-bearing deposits held-for-sale (2)     |  |                              | 219,809   |   |                        |   | 1,010             |  | 1.86 |                           |  |   |                       |   |                   |   |       |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total interest-bearing deposits                 |  |                              | 1,013,575 |   |                        |   | 4,052             |  | 1.62 |                           |  |   | 965,384                |   |                   |   | 5,732  |  | 2.41 |  
|Borrowings and repurchase agreements            |  |                              | 220,759   |   |                        |   | 2,116             |  | 3.89 |                           |  |   | 255,526                |   |                   |   | 2,116  |  | 3.36 |  
|Junior subordinated debentures                  |  |                              | 20,619    |   |                        |   | 297               |  | 5.84 |                           |  |   | 20,619                 |   |                   |   | 316    |  | 6.22 |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total interest-bearing liabilities              |  |                              | 1,254,953 |   |                        |   | 6,465             |  | 2.09 |                           |  |   | 1,241,529              |   |                   |   | 8,164  |  | 2.67 |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |  
|Noninterest-bearing liabilities:                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Noninterest-bearing deposits                    |  |                              | 146,779   |   |                        |   |                   |  |      |                           |  |   | 140,821                |   |                   |   |        |  |      |  
|Noninterest-bearing deposits held-for-sale (2)  |  |                              | 17,213    |   |                        |   |                   |  |      |                           |  |   |                       |   |                   |   |        |  |      |  
|Other liabilities                               |  |                              | 15,412    |   |                        |   |                   |  |      |                           |  |   | 10,269                 |   |                   |   |        |  |      |  
|Other liabilities held-for-sale (2)             |  |                              | 303       |   |                        |   |                   |  |      |                           |  |   |                       |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total liabilities                               |  |                              | 1,434,660 |   |                        |   |                   |  |      |                           |  |   | 1,392,619              |   |                   |   |        |  |      |  
|Shareholders equity                            |  |                              | 187,113   |   |                        |   |                   |  |      |                           |  |   | 186,573                |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Total liabilities and shareholders equity      |  | $                            | 1,621,773 |   |                        |   |                   |  |      |                           |  | $ | 1,579,192              |   |                   |   |        |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Net interest income (1)                         |  |                              |           |   |                        | $ | 11,616            |  |      |                           |  |   |                        |   |                   | $ | 11,537 |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Net interest spread (1)                         |  |                              |           |   |                        |   |                   |  | 2.75 | %                         |  |   |                        |   |                   |   |        |  | 2.68 | %
|Net interest margin (1)                         |  |                              |           |   |                        |   |                   |  | 3.11 | %                         |  |   |                        |   |                   |   |        |  | 3.13 | %
|Net interest income (GAAP)                      |  |                              |           |   |                        | $ | 11,490            |  |      |                           |  |   |                        |   |                   | $ | 11,461 |  |      |  
|Taxable-equivalent adjustment                   |  |                              |           |   |                        |   | 126               |  |      |                           |  |   |                        |   |                   |   | 76     |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  
|Net interest income on taxable-equivalent basis |  |                              |           |   |                        | $ | 11,616            |  |      |                           |  |   |                        |   |                   | $ | 11,537 |  |      |  
|                                                |  |                              |           |   |                        |   |                   |  |      |                           |  |   |                        |   |                   |   |        |  |      |  



|(1) | Non-GAAP measure. On taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities based on a 34% federal tax rate.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In the first quarter of 2010, assets and liabilities held-for-sale are assumed to be outstanding for the entire quarter.
|--- | ------------------------------------------------------------------------------------------------------------------------



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Provision for Loan Losses

The provision for loan losses is the amount we determine necessary to be charged against the current periods earnings to maintain the allowance for
loan losses at a level that is considered adequate in relation to the estimated losses inherent in the loan portfolio. The provision was $5.0 million for the three months ended March 31, 2010, including $1.8 million related to our Florida loans
held-for-sale, an increase of $1.9 million compared with the same period of 2009. The provision reflects the amount we consider necessary to fund losses inherent in the loan portfolio primarily as a result of the lingering effects of the
recessionary economic environment, weakness in our Florida market, the higher net charge-offs compared with the first quarter of 2009 and other qualitative factors.

Noninterest Income

Noninterest income represented 37.55% and 34.75% of total revenue for the three months ended March 31, 2010 and 2009.

Noninterest income increased $805,000, or 13.2%, to $6.9 million for the three months ended March 31, 2010, compared with the same period in 2009.
The increase was due primarily to trust and investment management fees, which rose $869,000, or 23.2%, to $4.6 million. The increase in trust and investment management fees was due primarily to a 30.4% increase in assets under management.

The following table presents, for the periods indicated, the major categories of noninterest income:



|                                                  |  |                             |       |      |   |      
|------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                  |  | Three MonthsEnded March 31,
|                                                  |  | 2010                        |       | 2009
|                                                  |  | (dollars in thousands)     
|Trust and investment management fees              |  | $                           | 4,618 |      | $ | 3,749
|Mortgage banking                                  |  |                             | 36    |      |   | 151  
|Insurance commissions and fees                    |  |                             | 1,639 |      |   | 1,610
|Net gain on sale of available-for-sale securities |  |                             | 99    |      |   |     
|Other                                             |  |                             | 517   |      |   | 594  
|                                                  |  |                             |       |      |   |      
|Total noninterest income                          |  | $                           | 6,909 |      | $ | 6,104
|                                                  |  |                             |       |      |   |      

Noninterest Expense

Noninterest expense was $18.3 million for the first quarter of 2010, an increase of $5.5 million, compared with the same period of 2009. Excluding the
write down of assets held-for-sale in connection with the Florida transactions, noninterest expense was $15.7 million, an increase of $3.0 million, or 23.5%, compared with the same period of 2009. The increase was due primarily to a combination of
higher compensation expense, foreclosed real estate expense and FDIC assessments. 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, as we reduced investment in real estate by $3.6 million, or 24.5%, from December 31, 2009. The higher FDIC
assessment expenses reflect higher assessment rates imposed by the FDIC, a growing deposit base, and the expiration of credits in previous quarters.



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The following table presents, for the periods indicated, the major categories of noninterest expense:



|                                     |  |                             |        |      |   |       
|------------------------------------ |  | --------------------------- | ------ | ---- | - | ------
|                                     |  | Three MonthsEnded
March 31,
|                                     |  | 2010                        |        | 2009
|                                     |  | (dollars in thousands)     
|Compensation                         |  | $                           | 8,551  |      | $ | 7,514 
|Non-staff expenses:                  |  |                             |        |      |   |       
|Occupancy                            |  |                             | 1,478  |      |   | 1,454 
|Equipment                            |  |                             | 363    |      |   | 433   
|Advertising and promotion            |  |                             | 181    |      |   | 216   
|Outside data processing              |  |                             | 870    |      |   | 764   
|Professional fees                    |  |                             | 921    |      |   | 936   
|Intangible amortization              |  |                             | 158    |      |   | 171   
|FDIC assessment                      |  |                             | 655    |      |   | 52    
|Foreclosed real estate expenses, net |  |                             | 1,124  |      |   | 267   
|Write down of assets held-for-sale   |  |                             | 2,535  |      |   |      
|Other                                |  |                             | 1.428  |      |   | 930   
|                                     |  |                             |        |      |   |       
|Total noninterest expense            |  | $                           | 18,264 |      | $ | 12,737
|                                     |  |                             |        |      |   |       

Income Tax Expense

The income tax benefit was $2.6 million for the three months ended March 31, 2010, compared with a provision of $654,000 for the same three months of
2009. The effective tax rate for the three months ended March 31, 2010 and 2009 was 53.3% and 36.6%. The effective rate in 2010 was affected by lower income levels and stable non-taxable income.

Result of Segment Operations

We manage the company along three operating segments: banking, wealth management and insurance. The column identified as Other includes the
parent company and the elimination transactions between segments. The accounting policies of the individual operating segments are the same as our accounting policies described in Note A to our consolidated financial statements as of and for the
year ended December 31, 2009 included in our Annual Report on Form 10-K.



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The following table presents the net earnings (loss) and total assets for each of our operating segments as
of and for the periods indicated:



|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|----------------------------------- |  | ---------------------- | --------- | - | ---------------- | - | --------- |  | ----- | ----- |  | ------------ | ------- | - |  | - | --------- | -
|                                    |  | Banking                |           |   | WealthManagement |   | Insurance |  | Other |       |  | Consolidated |        
|                                    |  | (dollars in thousands) |          
|Three months ended March 31, 2010   |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net interest income (expense)       |  | $                      | 11,742    |   |                  | $ | 40        |  | $     | 5     |  | $            | (297    | ) |  | $ | 11,490    |  
|Provision for loan losses           |  |                        | 4,960     |   |                  |   |          |  |       |      |  |              |        |   |  |   | 4,960     |  
|Noninterest income                  |  |                        | 647       |   |                  |   | 4,618     |  |       | 1,644 |  |              |        |   |  |   | 6,909     |  
|Noninterest expense                 |  |                        | 13,675    |   |                  |   | 3,562     |  |       | 1,027 |  |              |        |   |  |   | 18,264    |  
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |                        | (6,246    | ) |                  |   | 1,096     |  |       | 622   |  |              | (297    | ) |  |   | (4,825    | )
|Income tax expense (benefit)        |  |                        | (3,076    | ) |                  |   | 388       |  |       | 218   |  |              | (104    | ) |  |   | (2,574    | )
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $                      | (3,170    | ) |                  | $ | 708       |  | $     | 404   |  | $            | (193    | ) |  | $ | (2,251    | )
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Total assets at March 31, 2010      |  | $                      | 1,645,468 |   |                  | $ | 61,316    |  | $     | 8,053 |  | $            | (76,921 | ) |  | $ | 1,637,916 |  
|                                    |  |                        |           |   |                 
|Three months ended March 31, 2009   |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net interest income (expense)       |  | $                      | 11,736    |   |                  | $ | 38        |  | $     | 3     |  | $            | (316    | ) |  | $ | 11,461    |  
|Provision for loan losses           |  |                        | 3,039     |   |                  |   |          |  |       |      |  |              |        |   |  |   | 3,039     |  
|Noninterest income                  |  |                        | 661       |   |                  |   | 3,749     |  |       | 1,694 |  |              |        |   |  |   | 6,104     |  
|Noninterest expense                 |  |                        | 8,606     |   |                  |   | 3,098     |  |       | 1,033 |  |              |        |   |  |   | 12,737    |  
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |                        | 752       |   |                  |   | 689       |  |       | 664   |  |              | (316    | ) |  |   | 1,789     |  
|Income tax expense (benefit)        |  |                        | 291       |   |                  |   | 243       |  |       | 233   |  |              | (113    | ) |  |   | 654       |  
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $                      | 461       |   |                  | $ | 446       |  | $     | 431   |  | $            | (203    | ) |  | $ | 1,135     |  
|                                    |  |                        |           |   |                  |   |           |  |       |       |  |              |         |   |  |   |           |  
|Total assets at March 31, 2009      |  | $                      | 1,584,698 |   |                  | $ | 48,648    |  | $     | 7,695 |  | $            | (63,317 | ) |  | $ | 1,577,724 |  

Banking

The net loss for the three months ended March 31, 2010 was $3.2 million, compared with earnings of $461,000 in the same period of
2009. The loss resulted primarily from a $4.3 million write down of Florida assets held-for-sale, including $1.8 million charged to the allowance for loan losses.

Net interest income for the three months ended March 31, 2010 was flat compared with the same period of 2009. See the analysis of net interest
income included in the section of this report captioned Net Interest Income.

The provision for loan losses for the three
months ended March 31, 2010 totaled $5.0 million, including $1.8 million related to our Florida loans held-for-sale, compared with $3.0 million for the same period of 2009. See analysis of the provision for loan losses included in the section
of this report captioned Provision for Loan Losses.

Noninterest income for the three months ended March 31, 2010 was
flat compared with the same period in 2009.

Noninterest expense for the three months ended March 31, 2010 increased $5.1 million
compared with the same period in 2009 primarily due to a $2.5 million write down of Florida assets held-for-sale and increased compensation expense, foreclosed real estate expense and FDIC assessments.

Wealth Management

Net
earnings for the three months ended March 31, 2010 increased $262,000, or 58.7%, compared with the same period in 2009. The increase in earnings was due primarily to an increase in assets under management. Assets under management were $2.8
billion as of March 31, 2010 compared with $2.1 billion as of March 31, 2009, a 30.4% increase.

Noninterest income for the three
months ended March 31, 2010 increased $869,000, or 23.2%, compared with the same period in 2009, due primarily to increased assets under management.

Noninterest expense for the three months ended March 31, 2010 increased $464,000, or 15.0%, compared with the same period in 2009 primarily due to
increased compensation.



29



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##### Table of Contents

Insurance

Net earnings for the three months ended March 31, 2010 were relatively unchanged compared with the same period of 2009. Commission revenue was
essentially flat due to the soft property and casualty insurance market.

Other

Other consists primarily of interest expense on our junior subordinated debentures, which is not allocated to the business segments. Interest
expense on these borrowings decreased due to falling interest rates.

Financial Condition

Our total assets increased $2.6 million, or 0.2%, to $1.6 billion as of March 31, 2010 compared with December 31, 2009. Our loan portfolio,
including $80.0 million Florida loans held-for-sale, decreased $23.0 million, or 2.1%, to $1.1 billion as of March 31, 2010. Our securities portfolio decreased $30.9 million, or 12.0%, to $226.9 million compared with $257.8 million as of
December 31, 2009. Shareholders equity increased $3.5 million, or 1.9%, to $190.2 million compared with $186.7 million as of December 31, 2009.

Loan Portfolio

Our
primary lending focus is to privately-owned businesses, investors, professional firms, and affluent individuals. To these customers, we make commercial, commercial real estate, real estate construction, residential real estate and consumer loans.
Total commercial loans, which consist of commercial, commercial real estate and real estate construction loans, accounted for 36.1% of our portfolio as of March 31, 2010. Total consumer loans, which consist of residential real estate, home
equity lines of credit, consumer installment-indirect and other consumer loans, made up 56.1% of our loan portfolio as of March 31, 2010. Loans held-for-sale, including $80.0 million related to our Florida operations, composed 7.8% of our
portfolio.

Total loans were $1.1 billion as of March 31, 2010, a decrease of $23.0 million, or 2.1%, compared with December 31,
2009. The reduction in the loan portfolio reflected the deleveraging of our clients. The largest reduction, other than reclassification to loans held-for-sale, was in construction loans resulting primarily from the weak residential and commercial
real estate markets.



30



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##### Table of Contents

The following table summarizes our loan portfolio by type of loan as of the dates indicated:



|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|----------------------------------- |  | ---------------------- | --------- | ------- | ---------------- | - | ------ | - | --------- |  | ----- | -
|                                    |  | March 31,2010          |           |         | December 31,2009 |  
|                                    |  | Amount                 |           | Percent |                  |   | Amount |   | Percent   | 
|                                    |  | (dollars in thousands) |          
|Commercial:                         |  |                        |           |         |                  |   |        |   |           |  |       |  
|Commercial                          |  | $                      | 115,653   |         | 10.9             | % |        | $ | 115,431   |  | 10.7  | %
|Commercial real estate              |  |                        | 199,166   |         | 18.9             |   |        |   | 259,480   |  | 24.0  |  
|Real estate construction            |  |                        | 66,618    |         | 6.3              |   |        |   | 87,008    |  | 8.1   |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total commercial                    |  |                        | 381,437   |         | 36.1             |   |        |   | 461,919   |  | 42.8  |  
|                                    |  |                        |           |        
|Consumer:                           |  |                        |           |         |                  |   |        |   |           |  |       |  
|Residential real estate first lien  |  |                        | 211,366   |         | 20.0             |   |        |   | 222,337   |  | 20.6  |  
|Residential real estate second lien |  |                        | 289,344   |         | 27.4             |   |        |   | 291,433   |  | 27.0  |  
|Home equity lines                   |  |                        | 68,677    |         | 6.5              |   |        |   | 74,356    |  | 6.9   |  
|Consumer installment  indirect     |  |                        | 7,339     |         | 0.7              |   |        |   | 8,372     |  | 0.8   |  
|Consumer other                      |  |                        | 16,138    |         | 1.5              |   |        |   | 19,788    |  | 1.8   |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total consumer                      |  |                        | 592,864   |         | 56.1             |   |        |   | 616,286   |  | 57.1  |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Loans receivable                    |  |                        | 974,301   |         | 92.2             |   |        |   | 1,078,205 |  | 99.9  |  
|Loans held-for-sale                 |  |                        | 81,953    |         | 7.8              |   |        |   | 1,058     |  | 0.1   |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total loans (1)                     |  | $                      | 1,056,254 |         | 100.0            | % |        | $ | 1,079,263 |  | 100.0 | %
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  



|(1) | As of March 31, 2010, loans held-for-sale are included in total loans for all periods.
|--- | --------------------------------------------------------------------------------------

Nonperforming Assets

The following table presents information regarding nonperforming assets as of the dates indicated:



|                                                                      |  |                        |        |   |                  |   |        |  
|--------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                      |  | March 31,2010          |        |   | December 31,2009 |  
|                                                                      |  | (dollars in thousands) |       
|Nonaccrual loans (1)                                                  |  | $                      | 40,711 |   |                  | $ | 35,988 |  
|Investment in real estate                                             |  |                        | 11,054 |   |                  |   | 14,639 |  
|                                                                      |  |                        |        |   |                  |   |        |  
|Total nonperforming assets                                            |  | $                      | 51,765 |   |                  | $ | 50,627 |  
|                                                                      |  |                        |        |   |                  |   |        |  
|                                                                      |  |                       
|Accruing loans past due 90 days or more                               |  | $                      |       |   |                  | $ | 1,489  |  
|                                                                      |  |                        |        |   |                  |   |        |  
|Restructured loans still accruing                                     |  | $                      | 5,710  |   |                  | $ | 530    |  
|                                                                      |  |                        |        |   |                  |   |        |  
|Nonperforming assets to total loans and investment in real estate (2) |  |                        | 4.85   | % |                  |   | 4.63   | %



|(1) | Nonaccrual troubled debt restructurings are included in nonaccrual loans.
|--- | -------------------------------------------------------------------------

|(2) | As of March 31, 2010, loans held-for-sale are included in total loans for all periods.
|--- | --------------------------------------------------------------------------------------

Nonperforming assets were $51.8 million and $50.6 million as of March 31, 2010 and December 31, 2009. Our ratio of nonperforming assets to
total loans and investment in real estate was 4.85% and 4.63% as of March 31, 2010 and December 31, 2009. At March 31, 2010, nonaccrual loans were $40.7 million, compared with $36.0 million at December 31, 2009, an increase of
$4.7 million, or 13.1%. Nonaccrual commercial loans consisted of six loans, primarily in Houston, that were all less than $500,000. Commercial real estate nonaccrual loans consisted of 10 relationships that are primarily in Florida. Construction and
land nonaccrual loans consist of 10 land loans, primarily in Florida. The increase in nonaccrual loans was due primarily to two commercial real estate loans in Florida which totaled $7.4 million. Investment in real estate was $11.1 million at
March 31, 2010 compared with $14.6 million at December 31, 2009, a decrease of $3.6 million, or 24.5%. The decrease was due primarily to the sale of several residential properties in Houston. Loans 90 days or more past due and still
accruing, which are not included as nonperforming loans or assets, were reduced to zero from $1.5 million at



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December 31, 2009. This category consisted of one commercial real estate loan in Florida. Restructured loans still accruing were $5.7 million as of March 31, 2010, compared with
$530,000 as of December 31, 2009. Restructured loans still accruing consisted primarily of a land loan in Houston.

The following table
presents information regarding nonperforming loans and the associated specific reserves within the allowance for loan losses for each loan category:



|                                                          |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|--------------------------------------------------------- |  | ------------------ | ------ | ------------------------------- | - | ------------------ |  | ------------------------------ | ------ |  | - | -----
|                                                          |  | March 31, 2010     |        | December 31, 2009              
|                                                          |  | OutstandingBalance |        | SpecificAllocation 
ofAllowance |   | OutstandingBalance |  | SpecificAllocation ofAllowance
|                                                          |  |                    |        |                                
|Commercial:                                               |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|Commercial                                                |  | $                  | 2,071  |                                 | $ | 926                |  | $                              | 1,829  |  | $ | 1,147
|Commercial real estate                                    |  |                    | 18,470 |                                 |   | 4,169              |  |                                | 13,129 |  |   | 4,694
|Real estate construction                                  |  |                    | 8,011  |                                 |   | 110                |  |                                | 12,773 |  |   | 142  
|                                                          |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|Total commercial                                          |  |                    | 28,552 |                                 |   | 5,205              |  |                                | 27,731 |  |   | 5,983
|Consumer:                                                 |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|Residential real estate first lien (1)                    |  |                    | 11,205 |                                 |   | 538                |  |                                | 7,466  |  |   | 281  
|Residential real estate second lien and home equity lines |  |                    | 890    |                                 |   | 47                 |  |                                | 791    |  |   |     
|Consumer                                                  |  |                    | 64     |                                 |   |                   |  |                                |       |  |   |     
|                                                          |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|Total consumer                                            |  |                    | 12,159 |                                 |   | 585                |  |                                | 8,257  |  |   | 281  
|                                                          |  |                    |        |                                 |   |                    |  |                                |        |  |   |      
|Total nonperforming loans                                 |  | $                  | 40,711 |                                 | $ | 5,790              |  | $                              | 35,988 |  | $ | 6,264
|                                                          |  |                    |        |                                 |   |                    |  |                                |        |  |   |      



|(1) | Written down to fair value of collateral after becoming 180 days past due.
|--- | --------------------------------------------------------------------------

The increase in nonaccrual commercial real estate loans resulted primarily from two loans in Florida totaling $7.4 million. This increase was partially
offset by a $2.6 million partial charge-off of a loan in Florida. Nonaccrual construction loans decreased primarily due to several residential construction loans in Houston, which were restructured and reclassified as first mortgages.

When managements measured value of an impaired loan is less than the recorded investment in the loan, the amount of the impairment is recorded as a
specific reserve. The specific reserves are determined on an individual loan basis based on our current evaluation of loss exposure for each credit, given the payment status, financial condition of the borrower and value of any underlying
collateral. The amount of specific reserves can change from period to period as a result of changes in the circumstances of individual loans such as charge-offs, pay-offs, changes in collateral values or other factors. Notwithstanding the specific
allocations of the allowance for loan losses, the total allowance is available to absorb losses from any segment of loans.

Allowance for Loan Losses

Our allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance for loan losses is
maintained at a level which we believe is adequate to absorb all probable losses on loans inherent in the loan portfolio. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously
charged-off, which increase the allowance; and the provision for loan losses charged to earnings, which increases the allowance. In determining the provision for loan losses, we monitor fluctuations in the allowance resulting from actual charge-offs
and recoveries and periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions, which includes the current weakness in our Florida markets. If actual losses exceed the amount of the
allowance for loan losses, our earnings could be adversely affected.

The allowance for loan losses represents our estimate of the amount
necessary to provide for losses inherent in the loan portfolio in the normal course of business. Due to the uncertainty of risks in the loan portfolio, our judgment of the amount of the allowance necessary to absorb loan losses is approximate. The
allowance for loan losses is also subject to regulatory examinations and determination by the regulatory agencies as to its adequacy in comparison with peer institutions.



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Net charge-offs for the first quarter of 2010 were $6.3 million, including $1.8 million related to loans
held-for-sale in connection with the pending Florida transactions, or 2.41% of average total loans on an annualized basis, compared with $1.5 million, or 0.50% of average total loans on an annualized basis for the first quarter of 2009. The rise in
net charge-offs was due primarily to a $2.6 million partial charge-off of commercial real estate loan in Florida.

The following table
summarizes the activity in our allowance for loan losses as of and for the periods indicated:



|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | - | ------------------------------------------- | - | --------- | -
|                                                                                       |  | As of and forthe Three MonthsEnded March 31,2010 |           |   | As of and
forthe Year EndedDecember 31,2009 |  
|                                                                                       |  | (dollars in thousands)                           |          
|Average loans outstanding (1)                                                          |  | $                                                | 1,064,375 |   |                                             | $ | 1,146,839 |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total loans outstanding at end of period (1)                                           |  | $                                                | 1,056,254 |   |                                             | $ | 1,079,263 |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Allowance for loan losses at beginning of period                                       |  | $                                                | 26,501    |   |                                             | $ | 25,105    |  
|                                                                                       |  |                                                 
|Charge-offs:                                                                           |  |                                                  |           |   |                                             |   |           |  
|Commercial:                                                                            |  |                                                  |           |   |                                             |   |           |  
|Commercial                                                                             |  |                                                  | (382      | ) |                                             |   | (2,833    | )
|Commercial real estate                                                                 |  |                                                  | (4,346    | ) |                                             |   | (1,175    | )
|Real estate construction                                                               |  |                                                  | (322      | ) |                                             |   | (6,780    | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total commercial                                                                       |  |                                                  | (5,050    | ) |                                             |   | (10,788   | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|                                                                                       |  |                                                 
|Consumer:                                                                              |  |                                                  |           |   |                                             |   |           |  
|Residential real estate first lien                                                     |  |                                                  | (618      | ) |                                             |   | (2,767    | )
|Residential real estate second lien                                                    |  |                                                  | (434      | ) |                                             |   | (2,543    | )
|Home equity lines                                                                      |  |                                                  | (699      | ) |                                             |   | (1,820    | )
|Consumer installment - indirect                                                        |  |                                                  | (77       | ) |                                             |   | (656      | )
|Consumer other                                                                         |  |                                                  | (7        | ) |                                             |   | (78       | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total consumer                                                                         |  |                                                  | (1,835    | ) |                                             |   | (7,864    | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total charge-offs                                                                      |  |                                                  | (6,885    | ) |                                             |   | (18,652   | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|                                                                                       |  |                                                 
|Recoveries:                                                                            |  |                                                  |           |   |                                             |   |           |  
|Commercial:                                                                            |  |                                                  |           |   |                                             |   |           |  
|Commercial                                                                             |  |                                                  | 131       |   |                                             |   | 2,917     |  
|Commercial real estate                                                                 |  |                                                  |          |   |                                             |   |          |  
|Real estate construction                                                               |  |                                                  | 46        |   |                                             |   | 6         |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total commercial                                                                       |  |                                                  | 177       |   |                                             |   | 2,923     |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|                                                                                       |  |                                                 
|Consumer:                                                                              |  |                                                  |           |   |                                             |   |           |  
|Residential real estate first lien                                                     |  |                                                  | 134       |   |                                             |   | 110       |  
|Residential real estate second lien                                                    |  |                                                  | 132       |   |                                             |   | 70        |  
|Home equity lines                                                                      |  |                                                  | 78        |   |                                             |   | 131       |  
|Consumer installment - indirect                                                        |  |                                                  | 34        |   |                                             |   | 152       |  
|Consumer other                                                                         |  |                                                  | 1         |   |                                             |   | 2         |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total consumer                                                                         |  |                                                  | 379       |   |                                             |   | 465       |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Total recoveries                                                                       |  |                                                  | 556       |   |                                             |   | 3,388     |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Net charge-offs                                                                        |  |                                                  | (6,329    | ) |                                             |   | (15,264   | )
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|Provision for loan losses                                                              |  |                                                  | 4,960     |   |                                             |   | 16,660    |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|                                                                                       |  |                                                 
|Allowance for loan losses at end of period                                             |  | $                                                | 25,132    |   |                                             | $ | 26,501    |  
|                                                                                       |  |                                                  |           |   |                                             |   |           |  
|                                                                                       |  |                                                 
|Ratio of net charge-offs to average loans (1)                                          |  |                                                  | 2.41      | % |                                             |   | 1.33      | %
|Ratio of allowance for loan losses to period end loans (excluding loans held-for-sale) |  |                                                  | 2.58      |   |                                             |   | 2.46      |  
|Ratio of allowance for loan losses to nonperforming loans                              |  |                                                  | 61.73     |   |                                             |   | 73.64     |  



|(1) | As of March 31, 2010, loans held-for-sale are included in total loans for all periods.
|--- | --------------------------------------------------------------------------------------



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##### Table of Contents

Securities

Total securities were $226.9 million as of March 31, 2010, a decrease of $30.9 million, or 12.0%, compared with $257.8 million as of
December 31, 2009. The decrease was due primarily to government securities that were called.

Deposits

Our deposits averaged $1.2 billion for the three months ended March 31, 2010, an increase of $27.1 million, or 2.4%, over average deposits for the
year ended December 31, 2009. As of March 31, 2010, core deposits (which consist of noninterest-bearing deposits, interest checking, money market and savings and time deposits less than $100,000) were $682.0 million, or 56.8%, of total
deposits, while time deposits $100,000 and greater and brokered deposits made up 23.0% of total deposits and deposits held-for-sale comprised 20.2%. As of March 31, 2010, total deposits increased $9.6 million, or 0.8%, to $1.2 billion compared
with total deposits as of December 31, 2009.

The following table presents the daily average balance and weighted average rates paid on
deposits for the periods indicated:



|                                           |  |                                  |           |             |                             |   |                |   |             |  |      |  
|------------------------------------------ |  | -------------------------------- | --------- | ----------- | --------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                                           |  | Three Months EndedMarch 31,
2010 |           |             | Year EndedDecember 31, 2009 |  
|                                           |  | AverageBalance                   |           | AverageRate |                             |   | AverageBalance |   | AverageRate | 
|                                           |  | (dollars in thousands)           |          
|Noninterest-bearing deposits               |  | $                                | 146,779   |             |                            | % |                | $ | 152,873     |  |     | %
|Interest checking                          |  |                                  | 153,023   |             | 0.32                        |   |                |   | 186,440     |  | 0.48 |  
|Money market and savings                   |  |                                  | 240,292   |             | 0.85                        |   |                |   | 273,188     |  | 1.09 |  
|Time deposits less than $100,000           |  |                                  | 127,563   |             | 2.57                        |   |                |   | 200,493     |  | 3.33 |  
|                                           |  |                                  |           |             |                             |   |                |   |             |  |      |  
|Core deposits                              |  |                                  | 667,657   |             | 0.87                        |   |                |   | 812,994     |  | 1.30 |  
|                                           |  |                                  |           |             |                             |   |                |   |             |  |      |  
|Time deposits $100,000 and greater         |  |                                  | 247,809   |             | 2.34                        |   |                |   | 308,546     |  | 3.14 |  
|Brokered deposits                          |  |                                  | 25,079    |             | 2.82                        |   |                |   | 28,924      |  | 2.69 |  
|Noninterest-bearing deposits held-for-sale |  |                                  | 17,213    |             |                            |   |                |   |            |  |     |  
|Interest-bearing deposits held-for-sale    |  |                                  | 219,809   |             | 1.86                        |   |                |   |            |  |     |  
|                                           |  |                                  |           |             |                             |   |                |   |             |  |      |  
|Total deposits                             |  | $                                | 1,177,567 |             | 1.40                        | % |                | $ | 1,150,464   |  | 1.83 | %
|                                           |  |                                  |           |             |                             |   |                |   |             |  |      |  

Borrowings, Repurchase Agreements and Junior Subordinated Debentures

We utilize borrowings to supplement deposits in funding our lending and investing activities. These borrowings are typically advances from the Federal
Home Loan Bank of Dallas (FHLB), which have terms ranging from overnight to several years. All borrowings from the FHLB are collateralized by a blanket lien on Encore Banks mortgage-related assets. Additionally, we borrow from other financial
institutions using investment securities as collateral and have issued junior subordinated debentures to subsidiary trusts.

Our borrowings
and repurchase agreements were $218.6 million as of March 31, 2010. The outstanding balance as of March 31, 2010 includes $209.3 million in long term advances from FHLB and $9.2 million in repurchase agreements with clients. Included in
the long term advances are $95.0 million of long term advances that have call provisions that are at the discretion of the FHLB which could shorten the maturity of the borrowings.

We decreased our borrowings and repurchase agreements $2.1 million, or 0.9%, to $218.6 million as of March 31, 2010 from $220.6 million as of
December 31, 2009. The decrease was due primarily to a decrease in repurchase agreements with clients.



34



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##### Table of Contents

The following table summarizes our two issues of junior subordinated debentures outstanding as of
March 31, 2010:



|                          |  |                           |  |                                     |        |                                 |      |   |                  |                      |                    |                      |                                      |   |                   |  |          
|------------------------- |  | ------------------------- |  | ----------------------------------- | ------ | ------------------------------- | ---- | - | ---------------- | -------------------- | ------------------ | -------------------- | ------------------------------------ | - | ----------------- |  | ---------
|Description               |  | Issuanceand CallDates (1) |  | TrustPreferredSecuritiesOutstanding |        | InterestRate as ofMarch 31,2010 |      |   | Fixed/Adjustable |                      | Interest RateBasis |                      | JuniorSubordinatedDebt Owedto Trusts |   | FinalMaturityDate
|                          |  | (dollars in thousands)   
|Encore Statutory Trust II |  | 9/17/2003                 |  | $                                   | 5,000  |                                 | 3.21 | % |                  | Adjustable quarterly |                    | 3 monthLIBOR + 2.95% |                                      | $ | 5,155             |  | 9/24/2033
|Encore Capital Trust III  |  | 4/19/2007                 |  |                                     | 15,000 |                                 | 6.85 | % |                  | Fixed rate (2)       |                    | 6.85%(2)             |                                      |   | 15,464            |  | 4/19/2037



|(1) | Each issue of junior subordinated debentures is callable by us after five years from issuance date.
|--- | ---------------------------------------------------------------------------------------------------

|(2) | The debentures bear a fixed interest rate until April 19, 2012, when the rate begins to float on a quarterly basis based on the 3 month LIBOR plus 1.75%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Funding

Our liquidity represents our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition
opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers also affect our liquidity needs. Many of these obligations and commitments are expected to
expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. Liquidity management involves forecasting funding requirements and maintaining sufficient
capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in our business operations or unanticipated events.

Liquidity needs of a financial institution can be met from either assets or liabilities. On the asset side, our primary sources of liquidity are cash and
due from banks, federal funds sold, maturities of securities and scheduled repayments and maturities of loans. On the liability side, our principal sources of liquidity are deposits, borrowed funds and the accessibility to money and capital markets.
Client deposits are our largest source of funds. For the three months ended March 31, 2010, our average deposits were $1.2 billion, or 72.6% of average total assets.

Shareholders Equity

Shareholders equity increased $3.5 million, or 1.9%, to $190.2 million as of March 31, 2010 compared with $186.7 million as of
December 31, 2009, primarily due to approximately 696,000 shares of common stock issued as a result of the completion of a contingency payment related to the acquisition of Linscomb & Williams.

Regulatory Capital

We
actively manage our capital. Our potential sources of capital are earnings and common or preferred equity. From time to time, we have issued trust preferred securities through a subsidiary trust either to fund organic growth or to support an
acquisition. Trust preferred securities can be eligible for treatment as Tier 1 regulatory capital provided such securities comprise less than 25% of core capital elements. Any amount above this limit can be eligible for treatment as Tier 2 capital.
We currently have the capacity to issue additional trust preferred securities that would be treated as Tier 1 capital.

Each of the federal
bank regulatory agencies has established minimum capital adequacy and leverage capital requirements for banking organizations. Encore Bank is subject to the capital adequacy requirements of the OCC and we, as a bank holding company, are subject to
the capital adequacy requirements of the Federal Reserve. As of the most recent notification from the OCC, Encore Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized
well capitalized, Encore Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios as set forth in the table below. There are no conditions or events since that notification that we believe have
changed Encore Banks capital position. We intend that Encore Bank will maintain a capital position that meets or exceeds the well capitalized requirements as defined by the OCC.



35



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##### Table of Contents

The following table presents capital amounts and ratios for us and Encore Bank as of March 31, 2010:



|                        |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|----------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ---------------------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                        |  | Actual                 |         |       | For CapitalAdequacyPurposes |   |        | To Be Categorized asWell
CapitalizedUnder Prompt CorrectiveAction Provisions |       
|                        |  | Amount                 |         | Ratio |                             |   | Amount |                                                                              | Ratio  |  |      | Amount |  | Ratio |        
|                        |  | (dollars in thousands) |        
|Encore Bancshares, Inc. |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Leverage                |  | $                      | 169,606 |       | 10.73                       | % |        | $                                                                            | 63,234 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Tier 1 risk-based       |  |                        | 169,606 |       | 15.56                       |   |        |                                                                              | 43,614 |  | 4.00 |        |  |       | N/A     |  | N/A   |  
|Total risk-based        |  |                        | 183,387 |       | 16.82                       |   |        |                                                                              | 87,228 |  | 8.00 |        |  |       | N/A     |  | N/A   |  
|                        |  |                        |         |       |                             |  
|Encore Bank, N.A.       |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Leverage                |  | $                      | 141,462 |       | 8.96                        | % |        | $                                                                            | 63,122 |  | 4.00 | %      |  | $     | 78,902  |  | 5.00  | %
|Tier 1 risk-based       |  |                        | 141,462 |       | 13.00                       |   |        |                                                                              | 43,517 |  | 4.00 |        |  |       | 65,276  |  | 6.00  |  
|Total risk-based        |  |                        | 155,223 |       | 14.27                       |   |        |                                                                              | 87,035 |  | 8.00 |        |  |       | 108,794 |  | 10.00 |  



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There have been no material changes in market risk from the information provided in the Asset/Liability Management section of Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

During the first quarter of 2010, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

Part II  Other
Information



|Item 1. | Legal Proceedings
|------- | -----------------

We are a defendant in
legal actions arising from transactions conducted in the ordinary course of business. We believe, after consultation with legal counsel, that the ultimate liability, if any, arising from such actions will not have a material adverse effect on our
consolidated financial statements.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to the
information contained in this report, you should consider the factors discussed under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes in our Risk
Factors from those disclosed in our Form 10-K.



36



---

##### Table of Contents

|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The following table presents information with respect to repurchases of common stock made by us during the three months ended March 31, 2010. These
shares were delivered to us by employees as payment for taxes on the vesting of restricted stock issued under our 2000 Stock Incentive Plan.

ISSUER PURCHASES OF EQUITY SECURITIES



|              |  |                                 |     |  |                             |      |                                                                               |   |                                                                            |  
|------------- |  | ------------------------------- | --- |  | --------------------------- | ---- | ----------------------------------------------------------------------------- | - | -------------------------------------------------------------------------- | -
|Month in 2010 |  | Total Number ofShares Purchased |     |  | Average Price Paidper
Share |      | Total Number ofShares Purchased 
asPart of PubliclyAnnounced Plans orPrograms |   | Maximum Numberof Shares that MayYet Be
PurchasedUnder the Plans orPrograms
|January       |  |                                |     |  | $                           |     |                                                                               |  |                                                                            | 
|February      |  | 1,306                           |     |  |                             | 8.39 |                                                                               |  |                                                                            | 
|March         |  | 8,855                           |     |  |                             | 8.50 |                                                                               |  |                                                                            | 
|              |  |                                 |     |  |                             |      |                                                                               |   |                                                                            |  
|Total         |  | 10,161                          | (1) |  | $                           | 8.49 |                                                                               |  |                                                                            | 
|              |  |                                 |     |  |                             |      |                                                                               |   |                                                                            |  



|(1) | The 10,161 shares repurchased were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes
on the vesting of restricted stock under our 2000 Stock Incentive Plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not
applicable



|Item 4. | Reserved
|------- | --------



|Item 5. | Other Information
|------- | -----------------

Not applicable



|Item 6. | Exhibits
|------- | --------



|    |  |                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Amended and Restated Articles of Incorporation of Encore Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 to Encore Bancshares, Inc.s Registration Statement
on Form S-1, Registration No. 333-142735 (the S-1 Registration Statement)).
|    | 
|3.2 |  | Articles of Amendment to Articles of Incorporation of Encore Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 to the S-1 Registration Statement).                                                                                        
|    | 
|3.3 |  | Statement of Designations establishing the terms of the Series A Preferred Stock of Encore Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 to Encore Bancshares,
Inc.s Current Report on Form 8-K filed on December 8, 2008).          
|    | 
|3.4 |  | Amended and Restated Bylaws of Encore Bancshares, Inc. (incorporated herein by reference to Exhibit 3.3 to the S-1 Registration Statement).                                                                                                               
|    | 
|4.1 |  | Form of specimen certificate representing shares of Encore Bancshares, Inc. common stock (incorporated herein by reference to Exhibit 4.1 to the S-1 Registration
Statement).                                                                             
|    | 
|4.2 |  | Warrant, dated December 5, 2008, to purchase 364,026 shares of Encore Bancshares, Inc.s Common Stock (incorporated herein by reference to Exhibit 4.1 to Encore Bancshares,
Inc.s Current Report on Form 8-K filed on December 8, 2008).                



37



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3    |  | Form of Certificate for Encore Bancshares, Inc.s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (incorporated herein by reference to
Exhibit 4.2 to Encore Bancshares, Inc.s Current Report on Form 8-K filed on December 8, 2008).
|       | 
|31.1*  |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                
|       | 
|31.2*  |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                
|       | 
|32.1** |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                            



|* | Filed with this Quarterly Report on Form 10-Q
|- | ---------------------------------------------

|** | Furnished with this Quarterly Report on Form 10-Q
|-- | -------------------------------------------------



38



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##### Table of Contents

SIGNATURES

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



|             |  |  |  |                                                                                   
|------------ |  |  |  | ----------------------------------------------------------------------------------
|             |  |  |  | Encore Bancshares, Inc.                                                           
|             |  |  |  | (Registrant)                                                                      
|             |  | 
|May 10, 2010 |  |  |  | /S/    JAMES S.
DAGOSTINO, JR.                                                   
|(Date)       |  |  |  | James S. DAgostino, Jr., Chief Executive Officer                                 
|             |  | 
|May 10, 2010 |  |  |  | /S/    L. ANDERSON
CREEL                                                          
|(Date)       |  |  |  | L. Anderson Creel, Chief Financial Officer,
Executive Vice President and Treasurer



39