##### 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 June 30, 2009.
|- | ----------------------------------------------------------------------------------------------------------------------------



| ̈ | 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 July 31, 2009, there were 10.3 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  June 30, 2009 (unaudited) and December 31, 2008                                |  | 3 
|                              |  |                                                                                                             
|                              |  | Consolidated Statements of Operations  Three months and six months ended June 30, 2009 and 2008 (unaudited) |  | 4 
|                              |  |                                                                                                             
|                              |  | Consolidated Statement of Changes in Shareholders Equity  Six months ended June 30, 2009 (unaudited)       |  | 5 
|                              |  |                                                                                                             
|                              |  | Consolidated Statements of Cash Flows  Six months ended June 30, 2009 and 2008 (unaudited)                  |  | 6 
|                              |  |                                                                                                             
|                              |  | Notes to Interim Consolidated Financial Statements (unaudited)                                               |  | 7 
|                              |  |                                                                                                             
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 21
|                              |  |                                                                                                             
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 34
|                              |  |                                                                                                             
|Item 4.                       |  | Controls and Procedures                                                                                      |  | 34
|                              | 
|Part II. OTHER INFORMATION    |  |                                                                                                             
|Item 1.                       |  | Legal Proceedings                                                                                            |  | 34
|                              |  |                                                                                                             
|Item 1A.                      |  | Risk Factors                                                                                                 |  | 34
|                              |  |                                                                                                             
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                  |  | 35
|                              |  |                                                                                                             
|Item 3.                       |  | Defaults Upon Senior Securities                                                                              |  | 35
|                              |  |                                                                                                             
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                          |  | 35
|                              |  |                                                                                                             
|Item 5.                       |  | Other Information                                                                                            |  | 36
|                              |  |                                                                                                             
|Item 6.                       |  | Exhibits                                                                                                     |  | 36
|                              | 
|Signatures                    |  | 37                                                                                                          



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)



|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                          |  | June 30,2009 |           |   | December 31,2008 |  
|ASSETS                                                                                                                                                                    |  |              |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                                   |  | $            | 17,891    |   |                  | $ | 23,044    |  
|Interest-bearing deposits in banks                                                                                                                                        |  |              | 124,959   |   |                  |   | 91,459    |  
|Federal funds sold and other temporary investments                                                                                                                        |  |              | 3,263     |   |                  |   | 3,549     |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                                 |  |              | 146,113   |   |                  |   | 118,052   |  
|Securities available-for-sale, at estimated fair value                                                                                                                    |  |              | 132,437   |   |                  |   | 78,816    |  
|Securities held-to-maturity, at amortized cost                                                                                                                            |  |              | 108,594   |   |                  |   | 95,875    |  
|Mortgages held-for-sale                                                                                                                                                   |  |              | 1,168     |   |                  |   | 150       |  
|Loans receivable                                                                                                                                                          |  |              | 1,148,820 |   |                  |   | 1,218,404 |  
|Allowance for loan losses                                                                                                                                                 |  |              | (25,214   | ) |                  |   | (25,105   | )
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Net loans receivable                                                                                                                                                      |  |              | 1,123,606 |   |                  |   | 1,193,299 |  
|Federal Home Loan Bank of Dallas stock, at cost                                                                                                                           |  |              | 9,561     |   |                  |   | 9,534     |  
|Investment in real estate                                                                                                                                                 |  |              | 8,032     |   |                  |   | 2,781     |  
|Premises and equipment, net                                                                                                                                               |  |              | 16,435    |   |                  |   | 17,362    |  
|Goodwill                                                                                                                                                                  |  |              | 27,873    |   |                  |   | 27,873    |  
|Other intangible assets, net                                                                                                                                              |  |              | 5,691     |   |                  |   | 6,031     |  
|Cash surrender value of life insurance policies                                                                                                                           |  |              | 15,019    |   |                  |   | 14,686    |  
|Accrued interest receivable and other assets                                                                                                                              |  |              | 22,189    |   |                  |   | 23,385    |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|                                                                                                                                                                          |  | $            | 1,616,718 |   |                  | $ | 1,587,844 |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|                                                                                                                                                                          |  |             
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                      |  |              |           |   |                  |   |           |  
|Deposits:                                                                                                                                                                 |  |              |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                                       |  | $            | 146,373   |   |                  | $ | 131,709   |  
|Interest-bearing                                                                                                                                                          |  |              | 1,030,134 |   |                  |   | 969,088   |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Total deposits                                                                                                                                                            |  |              | 1,176,507 |   |                  |   | 1,100,797 |  
|Borrowings and repurchase agreements                                                                                                                                      |  |              | 223,218   |   |                  |   | 272,026   |  
|Junior subordinated debentures                                                                                                                                            |  |              | 20,619    |   |                  |   | 20,619    |  
|Accrued interest payable and other liabilities                                                                                                                            |  |              | 8,565     |   |                  |   | 8,660     |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                         |  |              | 1,428,909 |   |                  |   | 1,402,102 |  
|Commitments and contingencies                                                                                                                                             |  |              |          |   |                  |   |          |  
|Shareholders equity:                                                                                                                                                     |  |              |           |   |                  |   |           |  
|Preferred stock, $1 par value, 20,000 shares authorized; 34 shares issued at June 30, 2009 and December 31, 2008; aggregate
liquidation preference of $34,222 and $34,127 |  |              | 28,718    |   |                  |   | 28,461    |  
|Common stock, $1 par value, 50,000 shares authorized; 10,346 shares at June 30, 2009 and 10,247 shares at December 31, 2008 issued                                        |  |              | 10,346    |   |                  |   | 10,247    |  
|Additional paid-in capital                                                                                                                                                |  |              | 115,698   |   |                  |   | 115,489   |  
|Retained earnings                                                                                                                                                         |  |              | 32,372    |   |                  |   | 31,523    |  
|Common stock in treasury, at cost (9 shares at June 30, 2009 and 6 shares at December 31, 2008)                                                                           |  |              | (123      | ) |                  |   | (98       | )
|Accumulated other comprehensive income                                                                                                                                    |  |              | 798       |   |                  |   | 120       |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                |  |              | 187,809   |   |                  |   | 185,742   |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|                                                                                                                                                                          |  | $            | 1,616,718 |   |                  | $ | 1,587,844 |  
|                                                                                                                                                                          |  |              |           |   |                  |   |           |  

The accompanying notes are an integral part of these statements.



3



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

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



|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|--------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                    |  | Three MonthsEnded June 30, |        | Six MonthsEnded June 30,
|                                                    |  | 2009                       |        | 2008                     |   | 2009   |  | 2008
|Interest income:                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Loans, including fees                               |  | $                          | 17,220 |                          | $ | 18,238 |  | $    | 34,699 |  | $ | 36,616
|Mortgages held-for-sale                             |  |                            | 32     |                          |   | 25     |  |      | 60     |  |   | 57    
|Securities                                          |  |                            | 2,121  |                          |   | 1,250  |  |      | 4,083  |  |   | 2,569 
|Federal funds sold and other temporary investments  |  |                            | 156    |                          |   | 552    |  |      | 312    |  |   | 1,355 
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total interest income                               |  |                            | 19,529 |                          |   | 20,065 |  |      | 39,154 |  |   | 40,597
|Interest expense:                                   |  |                            |        |                          |   |        |  |      |        |  |   |       
|Deposits                                            |  |                            | 5,643  |                          |   | 7,123  |  |      | 11,375 |  |   | 15,665
|Borrowings and repurchase agreements                |  |                            | 2,119  |                          |   | 1,767  |  |      | 4,235  |  |   | 3,522 
|Junior subordinated debentures                      |  |                            | 309    |                          |   | 330    |  |      | 625    |  |   | 686   
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total interest expense                              |  |                            | 8,071  |                          |   | 9,220  |  |      | 16,235 |  |   | 19,873
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net interest income                                 |  |                            | 11,458 |                          |   | 10,845 |  |      | 22,919 |  |   | 20,724
|Provision for loan losses                           |  |                            | 2,927  |                          |   | 3,777  |  |      | 5,966  |  |   | 5,278 
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net interest income after provision for loan losses |  |                            | 8,531  |                          |   | 7,068  |  |      | 16,953 |  |   | 15,446
|Noninterest income:                                 |  |                            |        |                          |   |        |  |      |        |  |   |       
|Trust and investment management fees                |  |                            | 4,087  |                          |   | 4,660  |  |      | 7,836  |  |   | 9,067 
|Mortgage banking                                    |  |                            | 351    |                          |   | 135    |  |      | 502    |  |   | 189   
|Insurance commissions and fees                      |  |                            | 1,404  |                          |   | 1,385  |  |      | 3,014  |  |   | 3,112 
|Other                                               |  |                            | 485    |                          |   | 455    |  |      | 1,079  |  |   | 916   
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total noninterest income                            |  |                            | 6,327  |                          |   | 6,635  |  |      | 12,431 |  |   | 13,284
|Noninterest expense:                                |  |                            |        |                          |   |        |  |      |        |  |   |       
|Compensation                                        |  |                            | 7,231  |                          |   | 7,467  |  |      | 14,745 |  |   | 15,545
|Occupancy                                           |  |                            | 1,554  |                          |   | 1,485  |  |      | 3,008  |  |   | 2,923 
|Equipment                                           |  |                            | 449    |                          |   | 487    |  |      | 882    |  |   | 1,018 
|Advertising and promotion                           |  |                            | 200    |                          |   | 219    |  |      | 416    |  |   | 423   
|Outside data processing                             |  |                            | 783    |                          |   | 717    |  |      | 1,547  |  |   | 1,411 
|Professional fees                                   |  |                            | 1,043  |                          |   | 739    |  |      | 1,979  |  |   | 1,895 
|Intangible amortization                             |  |                            | 169    |                          |   | 188    |  |      | 340    |  |   | 375   
|FDIC assessment                                     |  |                            | 746    |                          |   | 30     |  |      | 798    |  |   | 61    
|Other                                               |  |                            | 1,536  |                          |   | 1,740  |  |      | 2,733  |  |   | 2,670 
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total noninterest expense                           |  |                            | 13,711 |                          |   | 13,072 |  |      | 26,448 |  |   | 26,321
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net earnings before income taxes                    |  |                            | 1,147  |                          |   | 631    |  |      | 2,936  |  |   | 2,409 
|Income tax expense                                  |  |                            | 326    |                          |   | 150    |  |      | 980    |  |   | 758   
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net earnings                                        |  | $                          | 821    |                          | $ | 481    |  | $    | 1,956  |  | $ | 1,651 
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Earnings available to common shareholders           |  | $                          | 267    |                          | $ | 481    |  | $    | 849    |  | $ | 1,651 
|                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Earnings per common share:                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic                                               |  | $                          | 0.03   |                          | $ | 0.05   |  | $    | 0.08   |  | $ | 0.16  
|Diluted                                             |  |                            | 0.02   |                          |   | 0.04   |  |      | 0.08   |  |   | 0.15  
|Average common shares outstanding                   |  |                            | 10,334 |                          |   | 10,202 |  |      | 10,284 |  |   | 10,173
|Diluted average common shares outstanding           |  |                            | 11,145 |                          |   | 10,925 |  |      | 11,013 |  |   | 10,889

The accompanying notes are an integral part of these statements.



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Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

Six Months Ended June 30, 2009

(Unaudited, amounts in thousands)



|                                                                                                    |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | --------- | ------ | ------------ | ------ | - | ----------------- | - | ------ | -------- |  | - | --------------- | - |  | ----------------------------- | ------ | ------------------ | ------ | - | ------ | - |  | - | --- |  | - | ------- | -
|                                                                                                    |  | Preferred |        | Common Stock |        |   | AdditionalPaid-in |   |        | Retained |  |   | Common Stock in |   |  | AccumulatedOtherComprehensive |        | TotalShareholders |       
|                                                                                                    |  | Stock     |        | Shares       |        |   | Amount            |   |        | Capital  |  |   | Earnings        |   |  | Treasury                      |        |                    | Income |   | Equity |  
|Balance at January 1, 2009                                                                          |  | $         | 28,461 |              | 10,247 |   |                   | $ | 10,247 |          |  | $ | 115,489         |   |  | $                             | 31,523 |                    |        | $ | (98    | ) |  | $ | 120 |  | $ | 185,742 |  
|Stock-based compensation cost recognized in earnings                                                |  |           |       |              |       |   |                   |   |       |          |  |   | 350             |   |  |                               |       |                    |        |   |       |   |  |   |    |  |   | 350     |  
|Issuance of restricted stock                                                                        |  |           |       |              | 107    |   |                   |   | 107    |          |  |   | (107            | ) |  |                               |       |                    |        |   |       |   |  |   |    |  |   |        |  
|Forfeitures of restricted stock                                                                     |  |           |       |              | (8     | ) |                   |   | (8     | )        |  |   | 8               |   |  |                               |       |                    |        |   |       |   |  |   |    |  |   |        |  
|Excess tax expense from stock-based compensation                                                    |  |           |       |              |       |   |                   |   |       |          |  |   | (42             | ) |  |                               |       |                    |        |   |       |   |  |   |    |  |   | (42     | )
|Purchase of treasury stock (3 shares)                                                               |  |           |       |              |       |   |                   |   |       |          |  |   |                |   |  |                               |       |                    |        |   | (25    | ) |  |   |    |  |   | (25     | )
|Comprehensive income:                                                                               |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   |         |  
|Net earnings                                                                                        |  |           |       |              |       |   |                   |   |       |          |  |   |                |   |  |                               | 1,956  |                    |        |   |       |   |  |   |    |  |   | 1,956   |  
|Change in net unrealized gain on securities available-for-sale, net of deferred tax expense of $362 |  |           |       |              |       |   |                   |   |       |          |  |   |                |   |  |                               |       |                    |        |   |       |   |  |   | 678 |  |   | 678     |  
|                                                                                                    |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   |         |  
|Total comprehensive income                                                                          |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   | 2,634   |  
|Dividends on preferred stock and amortization of preferred stock discount                           |  |           | 257    |              |       |   |                   |   |       |          |  |   |                |   |  |                               | (1,107 | )                  |        |   |       |   |  |   |    |  |   | (850    | )
|                                                                                                    |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   |         |  
|Balance at June 30, 2009                                                                            |  | $         | 28,718 |              | 10,346 |   |                   | $ | 10,346 |          |  | $ | 115,698         |   |  | $                             | 32,372 |                    |        | $ | (123   | ) |  | $ | 798 |  | $ | 187,809 |  
|                                                                                                    |  |           |        |              |        |   |                   |   |        |          |  |   |                 |   |  |                               |        |                    |        |   |        |   |  |   |     |  |   |         |  

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)



|                                                                                    |  |                          |         |   |      |   |         |  
|----------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                    |  | Six MonthsEnded June 30, |        
|                                                                                    |  | 2009                     |         |   | 2008 |  
|Cash flows from operating activities:                                               |  |                          |         |   |      |   |         |  
|Net earnings                                                                        |  | $                        | 1,956   |   |      | $ | 1,651   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Provision for loan losses                                                           |  |                          | 5,966   |   |      |   | 5,278   |  
|Amortization of premiums and discounts, net                                         |  |                          | 402     |   |      |   | 672     |  
|Stock-based compensation                                                            |  |                          | 350     |   |      |   | 598     |  
|Depreciation                                                                        |  |                          | 1,439   |   |      |   | 1,536   |  
|Gain on sale of loans                                                               |  |                          | (394    | ) |      |   | (133    | )
|Loss on sale of foreclosed real estate                                              |  |                          | 144     |   |      |   | 39      |  
|Increase in mortgages held-for-sale                                                 |  |                          | (35,817 | ) |      |   | (16,775 | )
|Proceeds from sale of mortgage loans                                                |  |                          | 35,193  |   |      |   | 18,304  |  
|Federal Home Loan Bank of Dallas stock dividends                                    |  |                          | (17     | ) |      |   | (118    | )
|Excess tax benefit from stock-based compensation                                    |  |                          |        |   |      |   | (81     | )
|(Increase) decrease in accrued interest receivable                                  |  |                          | (155    | ) |      |   | 765     |  
|(Increase) decrease in other assets                                                 |  |                          | 590     |   |      |   | (2,459  | )
|Increase (decrease) in accrued interest payable                                     |  |                          | (85     | ) |      |   | 81      |  
|Increase (decrease) in other liabilities                                            |  |                          | (80     | ) |      |   | 4,713   |  
|                                                                                    |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                           |  |                          | 9,492   |   |      |   | 14,071  |  
|                                                                                    |  |                          |         |   |      |   |         |  
|                                                                                    |  |                         
|Cash flows from investing activities:                                               |  |                          |         |   |      |   |         |  
|Purchases of available-for-sale securities                                          |  |                          | (64,249 | ) |      |   | (30,203 | )
|Principal collected on available-for-sale securities                                |  |                          | 8,480   |   |      |   | 775     |  
|Proceeds from sales of available-for-sale securities                                |  |                          | 3,026   |   |      |   |        |  
|Purchases of held-to-maturity securities                                            |  |                          | (32,222 | ) |      |   |        |  
|Principal collected on held-to-maturity securities                                  |  |                          | 19,603  |   |      |   | 26,465  |  
|Proceeds from sales of foreclosed real estate                                       |  |                          | 1,224   |   |      |   | 1,739   |  
|Cash paid for acquisition                                                           |  |                          |        |   |      |   | (33     | )
|Loan originations and principal collections, net                                    |  |                          | 56,779  |   |      |   | (79,608 | )
|Purchases of Federal Home Loan Bank stock                                           |  |                          | (10     | ) |      |   | (1,945  | )
|Purchases of premises and equipment                                                 |  |                          | (183    | ) |      |   | (1,421  | )
|                                                                                    |  |                          |         |   |      |   |         |  
|Net cash used by investing activities                                               |  |                          | (7,552  | ) |      |   | (84,231 | )
|                                                                                    |  |                          |         |   |      |   |         |  
|                                                                                    |  |                         
|Cash flows from financing activities:                                               |  |                          |         |   |      |   |         |  
|Net increase in deposits                                                            |  |                          | 75,710  |   |      |   | 13,369  |  
|Proceeds from long term Federal Home Loan Bank of Dallas borrowings                 |  |                          |        |   |      |   | 77,000  |  
|Repayment of long term Federal Home Loan Bank of Dallas borrowings                  |  |                          | (23     | ) |      |   | (25,000 | )
|Decrease in repurchase agreements                                                   |  |                          | (48,723 | ) |      |   | (13,045 | )
|Payment on notes payable                                                            |  |                          | (62     | ) |      |   | (93     | )
|Excess tax benefit from stock-based compensation                                    |  |                          |        |   |      |   | 81      |  
|Proceeds from issuance of common stock, net of purchases of treasury stock          |  |                          | (25     | ) |      |   | 400     |  
|Preferred dividends paid                                                            |  |                          | (756    | ) |      |   |        |  
|                                                                                    |  |                          |         |   |      |   |         |  
|Net cash provided by financing activities                                           |  |                          | 26,121  |   |      |   | 52,712  |  
|                                                                                    |  |                          |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |                          | 28,061  |   |      |   | (17,448 | )
|Cash and cash equivalents at beginning of period                                    |  |                          | 118,052 |   |      |   | 78,415  |  
|                                                                                    |  |                          |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                          |  | $                        | 146,113 |   |      | $ | 60,967  |  
|                                                                                    |  |                          |         |   |      |   |         |  
|                                                                                    |  |                         
|Supplementary cash flows information:                                               |  |                          |         |   |      |   |         |  
|Interest paid on deposits and borrowed funds                                        |  | $                        | 16,320  |   |      | $ | 19,792  |  
|Income taxes paid                                                                   |  |                          | 490     |   |      |   | 1,754   |  
|Noncash operating, investing and financing activities:                              |  |                          |         |   |      |   |         |  
|Real estate acquired in satisfaction of loans                                       |  |                          | 6,948   |   |      |   | 3,340   |  

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

June 30, 2009 and 2008

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

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Encore Bancshares, Inc. is a 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., 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, 2008 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, 2008. Operating results for the six months
ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any other period.

Nature of Operations

We are primarily in the business of attracting deposits and investing
these funds in loans and mortgage-backed 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 other 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

June 30, 2009 and 2008

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



Adoption of New Accounting Pronouncements

On January 1, 2009, we adopted the following new accounting pronouncements:

Financial Accounting Standards Board (FASB) Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (EITF 03-6-1);

FASB Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1); and

SFAS No. 160, Noncontrolling
Interest in Consolidated Financial Statements-An Amendment of ARB No. 51 (SFAS 160).

EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.
We determined that our outstanding nonvested restricted stock awards are participating securities. Accordingly, earnings per common share is computed using the two-class method prescribed by Statement of Financial Accounting Standards
(SFAS) 128, Earnings Per Share. In accordance with the adoption of the provisions of this standard, all previously reported earnings per common share data has been retrospectively adjusted to conform to the new computation method.

FSP 141(R)-1 provides additional guidance regarding the recognition, measurement and disclosure of assets and liabilities arising from
contingencies in a business combination. FSP 141(R)-1 is effective for assets or liabilities arising from contingencies we acquire in business combinations occurring after January 1, 2009. The adoption of FSP 141(R)-1 had no effect on our
consolidated financial statements; however, the future effect is dependant upon whether we make any acquisitions and the specifics of those acquisitions.

SFAS 160 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements(ARB 51), to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement also amends certain of ARB 51s consolidation procedures for consistency with the requirements of SFAS 141R. In addition, SFAS 160 also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. The adoption of SFAS 160 did not have a material effect on our consolidated financial statements.

In the second quarter of 2009, we adopted the following accounting standard and FASB staff positions:

SFAS
No. 165, Subsequent Events (SFAS 165). Issued in May 2009, SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. The adoption of SFAS 165 did not have a material effect on our consolidated financial statements; however any future effect is dependent on the occurrence of subsequent events that fall under the scope of this standard.

FASB Staff Position No. FAS 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP 107-1 and APB 28-1). FSP 107-1 and APB 28-1 amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about fair value of financial instruments in
interim financial information and amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FSP 107-1 and APB 28-1, a
publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the body or in the
accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as required by SFAS 107. The new interim disclosures required by FSP 107-1 and APB 28-1 are included in our interim financial statements.



8



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



FASB Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4). FSP 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be
received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active.
FSP 157-4 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence.

FSP 157-4 also amended SFAS 157, Fair Value Measurements, to expand certain disclosure requirements. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively.
The adoption of FSP 157-4 did not have a material effect on our consolidated financial statements.

FASB Staff Position No. FAS 115-2 and
FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2 and FSP 124-2). FSP 115-2 and FSP 124-2 (i) changes existing guidance for determining whether an impairment is other than temporary to debt
securities and (ii) replaces the existing requirement that the entitys management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have
the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP 115-2 and FSP 124-2, declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is
recognized in other comprehensive income. The adoption of FSP 115-2 and FSP 124-2 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 included in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been
no significant changes to these policies.

Comprehensive Income

Accounting principles generally require 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 (loss) are as follows:



|                                                                   |  |                             |      |   |                           |   |      |      |  |   |       |   |  |   |    |  
|------------------------------------------------------------------ |  | --------------------------- | ---- | - | ------------------------- | - | ---- | ---- |  | - | ----- | - |  | - | -- | -
|                                                                   |  | Three Months Ended June 30, |      |   | Six Months Ended June 30, |  
|                                                                   |  | 2009                        |      |   | 2008                      |   |      | 2009 |  |   | 2008  |  
|Unrealized holding gains (losses) on available-for-sale securities |  | $                           | (360 | ) |                           | $ | (140 | )    |  | $ | 1,040 |   |  | $ | 4  |  
|Tax (expense) benefit                                              |  |                             | 143  |   |                           |   | 51   |      |  |   | (362  | ) |  |   | (1 | )
|                                                                   |  |                             |      |   |                           |   |      |      |  |   |       |   |  |   |    |  
|Net-of-tax amount                                                  |  | $                           | (217 | ) |                           | $ | (89  | )    |  | $ | 678   |   |  | $ | 3  |  
|                                                                   |  |                             |      |   |                           |   |      |      |  |   |       |   |  |   |    |  

Subsequent Events

We have evaluated and determined that no significant subsequent events occurred through August 6, 2009.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



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

The amortized cost and fair values for the major categories of securities available-for-sale and held-to-maturity were as follows:



|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|---------------------------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                                                     |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|June 30, 2009                                        |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Available-for-sale:                                  |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|U.S. Government securities                           |  | $             | 40,258  |                      | $ | 4                     |  | $ | (522       | ) |  | $ | 39,740 
|Securities of U.S. states and political subdivisions |  |               | 1,296   |                      |   |                      |  |   | (72        | ) |  |   | 1,224  
|Mortgage-backed securities                           |  |               | 82,412  |                      |   | 2,205                 |  |   | (70        | ) |  |   | 84,547 
|Other securities                                     |  |               | 4,402   |                      |   |                      |  |   | (56        | ) |  |   | 4,346  
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total                                                |  |               | 128,368 |                      |   | 2,209                 |  |   | (720       | ) |  |   | 129,857
|Marketable equity securities                         |  |               | 2,516   |                      |   | 64                    |  |   |           |   |  |   | 2,580  
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total available-for-sale securities                  |  | $             | 130,884 |                      | $ | 2,273                 |  | $ | (720       | ) |  | $ | 132,437
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Held-to-maturity:                                    |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Securities of U.S. states and political subdivisions |  | $             | 11,439  |                      | $ | 50                    |  | $ | (465       | ) |  | $ | 11,024 
|Mortgage-backed securities                           |  |               | 79,357  |                      |   | 1,015                 |  |   | (12        | ) |  |   | 80,360 
|Other securities                                     |  |               | 17,798  |                      |   | 502                   |  |   | (59        | ) |  |   | 18,241 
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total held-to-maturity securities                    |  | $             | 108,594 |                      | $ | 1,567                 |  | $ | (536       | ) |  | $ | 109,625
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|                                                     |  |               |         |                     
|December 31, 2008                                    |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Available-for-sale:                                  |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities                           |  | $             | 71,897  |                      | $ | 712                   |  | $ |           |   |  | $ | 72,609 
|Other securities                                     |  |               | 4,202   |                      |   |                      |  |   | (60        | ) |  |   | 4,142  
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total                                                |  |               | 76,099  |                      |   | 712                   |  |   | (60        | ) |  |   | 76,751 
|Marketable equity securities                         |  |               | 2,016   |                      |   | 49                    |  |   |           |   |  |   | 2,065  
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total available-for-sale securities                  |  | $             | 78,115  |                      | $ | 761                   |  | $ | (60        | ) |  | $ | 78,816 
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Held-to-maturity:                                    |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities                           |  | $             | 95,875  |                      | $ | 1,057                 |  | $ | (4         | ) |  | $ | 96,928 
|                                                     |  |               |         |                      |   |                       |  |   |            |   |  |   |        



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Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



We own certain debt securities with unrealized losses as of June 30, 2009 and December 31,
2008. These securities, with unrealized losses segregated by length of impairment, were as follows:



|                                                     |  |                     |  |           |        |                  |   |      |  
|---------------------------------------------------- |  | ------------------- |  | --------- | ------ | ---------------- | - | ---- | -
|Description of Securities                            |  | Number ofSecurities |  | FairValue |        | UnrealizedLosses |  
|June 30, 2009:                                       |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|Less than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|U.S. Government securities                           |  | 5                   |  | $         | 23,646 |                  | $ | (522 | )
|Securities of U.S. states and political subdivisions |  | 2                   |  |           | 1,224  |                  |   | (72  | )
|Mortgage-backed securities                           |  | 1                   |  |           | 5,019  |                  |   | (70  | )
|Other securities                                     |  | 2                   |  |           | 479    |                  |   | (56  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total available-for-sale securities                  |  | 10                  |  | $         | 30,368 |                  | $ | (720 | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Securities of U.S. states and political subdivisions |  | 17                  |  | $         | 8,704  |                  | $ | (465 | )
|Mortgage-backed securities                           |  | 1                   |  |           | 958    |                  |   | (2   | )
|Other securities                                     |  | 3                   |  |           | 2,158  |                  |   | (59  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|Total held-to-maturity securities                    |  | 21                  |  | $         | 11,820 |                  | $ | (526 | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|More than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Mortgage-backed securities                           |  | 5                   |  | $         | 806    |                  | $ | (10  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|December 31, 2008:                                   |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|Less than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|Other securities                                     |  | 1                   |  | $         | 310    |                  | $ | (38  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Mortgage-backed securities                           |  | 2                   |  | $         | 536    |                  | $ | (1   | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|More than 12 months                                  |  |                     |  |           |        |                  |   |      |  
|Available-for-sale:                                  |  |                     |  |           |        |                  |   |      |  
|Other securities                                     |  | 1                   |  | $         | 165    |                  | $ | (22  | )
|                                                     |  |                     |  |           |        |                  |   |      |  
|                                                     |  |                     | 
|Held-to-maturity:                                    |  |                     |  |           |        |                  |   |      |  
|Mortgage-backed securities                           |  | 3                   |  | $         | 287    |                  | $ | (3   | )
|                                                     |  |                     |  |           |        |                  |   |      |  

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 such 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 June 30, 2009 and December 31, 2008, we believe the impairments detailed in the table are temporary and no impairment loss has been realized 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

June 30, 2009 and 2008

(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 June 30, 2009. 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                |         | Fair Value                 |   | AmortizedCost |  | FairValue
|Within one year                       |  | $                            | 1,991   |                            | $ | 1,993         |  | $         |        |  | $ |       
|Over one year through five years      |  |                              | 13,011  |                            |   | 12,995        |  |           | 10,457  |  |   | 10,631 
|After five years through ten years    |  |                              | 22,230  |                            |   | 21,726        |  |           | 7,341   |  |   | 7,610  
|Over ten years                        |  |                              | 4,857   |                            |   | 4,729         |  |           | 11,439  |  |   | 11,024 
|                                      |  |                              |         |                            |   |               |  |           |         |  |   |        
|Total                                 |  |                              | 42,089  |                            |   | 41,443        |  |           | 29,237  |  |   | 29,265 
|Mortgage-backed and equity securities |  |                              | 88,795  |                            |   | 90,994        |  |           | 79,357  |  |   | 80,360 
|                                      |  |                              |         |                            |   |               |  |           |         |  |   |        
|Total securities                      |  | $                            | 130,884 |                            | $ | 132,437       |  | $         | 108,594 |  | $ | 109,625
|                                      |  |                              |         |                            |   |               |  |           |         |  |   |        

Mortgage-backed securities consist of federal agency pass-through securities and have a weighted
average yield of 3.51% and 4.05% at June 30, 2009 and December 31, 2008. As of June 30, 2009, the mortgage-backed securities have contractual maturities from less than a year to 2039. Accrued interest receivable on mortgage-backed
securities was $592 and $637 at June 30, 2009 and December 31, 2008.

At June 30, 2009 and December 31, 2008, securities
with a carrying value of $42,932 and $75,698 were pledged as collateral for repurchase agreements, public funds, trust deposits, and for other purposes, as required or permitted by law.

Gross realized gains and losses on sales of available-for-sale securities were zero for the six months ended June 30, 2009 and 2008.

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 $188 and $119 for the
six months ended June 30, 2009 and 2008.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

(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:



|                                    |  |              |           |                  |   |          
|----------------------------------- |  | ------------ | --------- | ---------------- | - | ---------
|                                    |  | June 30,2009 |           | December 31,2008
|Commercial:                         |  |              |           |                  |   |          
|Commercial                          |  | $            | 126,079   |                  | $ | 135,534  
|Commercial real estate              |  |              | 308,441   |                  |   | 311,909  
|Real estate construction            |  |              | 78,045    |                  |   | 95,668   
|                                    |  |              |           |                  |   |          
|Total commercial                    |  |              | 512,565   |                  |   | 543,111  
|                                    |  |             
|Consumer:                           |  |              |           |                  |   |          
|Residential real estate first lien  |  |              | 232,885   |                  |   | 241,969  
|Residential real estate second lien |  |              | 292,891   |                  |   | 302,141  
|Home equity lines                   |  |              | 77,793    |                  |   | 82,555   
|Consumer installment - indirect     |  |              | 11,202    |                  |   | 14,409   
|Consumer other                      |  |              | 21,484    |                  |   | 34,219   
|                                    |  |              |           |                  |   |          
|Total consumer                      |  |              | 636,255   |                  |   | 675,293  
|                                    |  |              |           |                  |   |          
|Total loans receivable              |  | $            | 1,148,820 |                  | $ | 1,218,404
|                                    |  |              |           |                  |   |          

Included in loans receivable is $2,822 and $2,925 of net deferred loan origination costs at
June 30, 2009 and December 31, 2008.

Changes in the allowance for loan losses were as follows:



|                                           |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------ |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                           |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                           |  | 2009                        |        |   | 2008                      |   |        | 2009 |  |   | 2008   |  
|Balance at beginning of period             |  | $                           | 26,664 |   |                           | $ | 11,603 |      |  | $ | 25,105 |   |  | $ | 11,161 |  
|Provision for loan losses                  |  |                             | 2,927  |   |                           |   | 3,777  |      |  |   | 5,966  |   |  |   | 5,278  |  
|Loans charged-off                          |  |                             | (4,583 | ) |                           |   | (3,477 | )    |  |   | (6,236 | ) |  |   | (4,585 | )
|Recoveries of loans previously charged-off |  |                             | 206    |   |                           |   | 151    |      |  |   | 379    |   |  |   | 200    |  
|                                           |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Balance at end of period                   |  | $                           | 25,214 |   |                           | $ | 12,054 |      |  | $ | 25,214 |   |  | $ | 12,054 |  
|                                           |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



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



|                                                           |  |              |        |                  |   |       
|---------------------------------------------------------- |  | ------------ | ------ | ---------------- | - | ------
|                                                           |  | June 30,2009 |        | December 31,2008
|Impaired loans on nonaccrual without a valuation allowance |  | $            | 6,773  |                  | $ | 10,408
|Impaired loans on nonaccrual with a valuation allowance    |  |              | 16,929 |                  |   | 15,272
|                                                           |  |              |        |                  |   |       
|Total impaired loans (1)                                   |  | $            | 23,702 |                  | $ | 25,680
|                                                           |  |              |        |                  |   |       
|Valuation allowance related to impaired loans              |  | $            | 5,191  |                  | $ | 7,288 
|                                                           |  |              |        |                  |   |       
|Total nonaccrual loans                                     |  | $            | 28,552 |                  | $ | 30,531
|                                                           |  |              |        |                  |   |       
|Total accruing loans past due 90 days or more (2)          |  | $            |       |                  | $ | 646   
|                                                           |  |              |        |                  |   |       



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

|(2) | Beginning in 2009, loans past due 90 days or more are either charged-off or included in nonaccrual loans.
|--- | ---------------------------------------------------------------------------------------------------------

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 Office of the Comptroller of the Currency (OCC). Actual and minimum total risk-based, Tier
1 risk-based and Tier 1 leverage ratios as of June 30, 2009 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 |        
|June 30, 2009                         |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Tier 1 capital (to average assets)    |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Tier 1 (leverage)                     |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 174,656 |       | 11.22                        | % |        | $                                                                            | 62,286 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 142,658 |       | 9.19                         |   |        |                                                                              | 62,117 |  | 4.00 |        |  | $     | 77,646  |  | 5.00  | %
|Tier 1 capital (to risk-based assets) |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 174,656 |       | 14.99                        | % |        | $                                                                            | 46,617 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 142,658 |       | 12.27                        |   |        |                                                                              | 46,521 |  | 4.00 |        |  | $     | 69,781  |  | 6.00  | %
|Total capital (to risk-based assets)  |  |        |         |       |                              |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Encore Bancshares, Inc.               |  | $      | 189,363 |       | 16.25                        | % |        | $                                                                            | 93,235 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 157,345 |       | 13.53                        |   |        |                                                                              | 93,041 |  | 8.00 |        |  | $     | 116,302 |  | 10.00 | %

NOTE E  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.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



NOTE F  EARNINGS PER COMMON SHARE

On January 1, 2009, we adopted EITF 03-6-1, which requires that nonvested restricted stock be included in the calculation of basic average common
shares outstanding for all periods presented. Prior to January 1, 2009, we had included the effect of nonvested restricted stock in the calculation of diluted average common shares outstanding.

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



|                                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                                           |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                                                           |  | 2009                        |        | 2008                      |   | 2009   |  | 2008
|Basic:                                                                                     |  |                             |        |                           |   |        |  |      |        |  |   |       
|Earnings available to common shareholders                                                  |  | $                           | 267    |                           | $ | 481    |  | $    | 849    |  | $ | 1,651 
|Average common shares outstanding, including nonvested restricted stock                    |  |                             | 10,334 |                           |   | 10,202 |  |      | 10,284 |  |   | 10,173
|Per Share                                                                                  |  | $                           | 0.03   |                           | $ | 0.05   |  | $    | 0.08   |  | $ | 0.16  
|Diluted:                                                                                   |  |                             |        |                           |   |        |  |      |        |  |   |       
|Average common shares outstanding                                                          |  |                             | 10,334 |                           |   | 10,202 |  |      | 10,284 |  |   | 10,173
|Add: Net effect of the assumed exercise of stock options                                   |  |                             | 36     |                           |   | 411    |  |      | 18     |  |   | 418   
|Contingent share-based consideration                                                       |  |                             | 775    |                           |   | 312    |  |      | 711    |  |   | 298   
|                                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|Diluted average common shares outstanding                                                  |  |                             | 11,145 |                           |   | 10,925 |  |      | 11,013 |  |   | 10,889
|Per Share                                                                                  |  | $                           | 0.02   |                           | $ | 0.04   |  | $    | 0.08   |  | $ | 0.15  
|Anti-dilutive stock options and warrants not included in treasury stock method computation |  |                             | 938    |                           |   |       |  |      | 1,147  |  |   |      

Earnings available to common shareholders are net earnings after deducting preferred dividends of $554 and $1,107
in the three months and six months ended June 30, 2009. No dividends have been declared on our common stock.

NOTE G  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 SFAS 157, Fair Value Measurements, 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. Level 1 also includes U.S. Treasury,
other U. S. government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



The table below presents the balances of assets measured at fair value on a recurring basis as of
June 30, 2009:



|                                  |  |       |         |         |   |         |  |   |       
|--------------------------------- |  | ----- | ------- | ------- | - | ------- |  | - | ------
|Description                       |  | Total |         | Level 1 |   | Level 2
|Available-for-sale securities (1) |  | $     | 128,754 |         | $ | 42,983  |  | $ | 85,771
|                                  |  |       |         |         |   |         |  |   |       
|Total                             |  | $     | 128,754 |         | $ | 42,983  |  | $ | 85,771
|                                  |  |       |         |         |   |         |  |   |       

| | 
| | 

| | (1) | Excludes cost-basis equity securities of $3,683.
| | --- | ------------------------------------------------

For
assets measured at fair value on a nonrecurring basis during 2009 that were still held on the balance sheet at June 30, 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 theSix Months EndedJune 30, 2009
|Loans (1)                     |  | $     | 21,890 |         | $ | 21,890                                      |  | $ | 1,919
|Investment in real estate (2) |  |       | 8,032  |         |   | 8,032                                       |  |   | 251  
|                              |  |       |        |         |   |                                             |  |   |      
|Total                         |  | $     | 29,922 |         | $ | 29,922                                      |  | $ | 2,170
|                              |  |       |        |         |   |                                             |  |   |      

| | 
| | 

| | (1) | Represents carrying value of loans and related write downs for which adjustments are based on the appraised value of the collateral.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents carrying value of foreclosed assets measured at fair value upon initial recognition or subsequent impairment.
| | --- | ------------------------------------------------------------------------------------------------------------------------

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



|                                       |  |                |           |                     |   |                |  |                     |           |  |   |          
|-------------------------------------- |  | -------------- | --------- | ------------------- | - | -------------- |  | ------------------- | --------- |  | - | ---------
|                                       |  | June 30, 2009  |           | December 31, 2008  
|                                       |  | CarryingAmount |           | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Financial assets:                      |  |                |           |                     |   |                |  |                     |           |  |   |          
|Cash and cash equivalents              |  | $              | 146,113   |                     | $ | 146,113        |  | $                   | 118,052   |  | $ | 118,052  
|Securities available-for-sale          |  |                | 132,437   |                     |   | 132,437        |  |                     | 78,816    |  |   | 78,816   
|Securities held-to-maturity            |  |                | 108,594   |                     |   | 109,625        |  |                     | 95,875    |  |   | 96,928   
|Mortgages held-for-sale                |  |                | 1,168     |                     |   | 1,168          |  |                     | 150       |  |   | 150      
|Loans receivable, net                  |  |                | 1,123,606 |                     |   | 1,143,570      |  |                     | 1,193,299 |  |   | 1,220,926
|Federal Home Loan Bank of Dallas stock |  |                | 9,561     |                     |   | 9,561          |  |                     | 9,534     |  |   | 9,534    
|Accrued interest receivable            |  |                | 5,720     |                     |   | 5,720          |  |                     | 5,565     |  |   | 5,565    
|                                       |  |                |           |                    
|Financial liabilities:                 |  |                |           |                     |   |                |  |                     |           |  |   |          
|Deposits                               |  | $              | 1,176,507 |                     | $ | 1,177,289      |  | $                   | 1,100,797 |  | $ | 1,102,255
|Borrowings and repurchase agreements   |  |                | 223,218   |                     |   | 229,121        |  |                     | 272,026   |  |   | 277,802  
|Accrued interest payable               |  |                | 1,259     |                     |   | 1,259          |  |                     | 1,344     |  |   | 1,344    
|Junior subordinated debentures         |  |                | 20,619    |                     |   | 20,352         |  |                     | 20,619    |  |   | 21,198   

Under SFAS 157, 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 SFAS 157.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

(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
is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not recorded at fair value (SFAS 107 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 SFAS 107 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 SFAS 107 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, 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.

Mortgages
Held-for-Sale

Mortgages 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.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



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.

Investment in Real Estate

Investment in real estate is primarily foreclosed properties securing residential loans.
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 collateral and, accordingly, we classify foreclosed assets as Level 2.

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 2 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 June 30, 2009 and December 31, 2008. 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.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009 and 2008

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



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-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 H  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 included in our Annual Report on Form 10-K for the year ended December 31, 2008. 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

June 30, 2009 and 2008

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

Financial results by operating segment were as follows:



|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|---------------------------------------- |  | ------- | --------- | - | ---------------- | - | --------- |  | ----- | ------ |  | ------------ | ------- | - |  | - | ---------
|                                         |  | Banking |           |   | WealthManagement |   | Insurance |  | Other |        |  | Consolidated
|For the three months ended June 30, 2009 |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)            |  | $       | 11,726    |   |                  | $ | 38        |  | $     | 3      |  | $            | (309    | ) |  | $ | 11,458   
|Provision for loan losses                |  |         | 2,927     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 2,927    
|Noninterest income                       |  |         | 760       |   |                  |   | 4,087     |  |       | 1,480  |  |              |        |   |  |   | 6,327    
|Noninterest expense                      |  |         | 9,614     |   |                  |   | 3,040     |  |       | 1,057  |  |              |        |   |  |   | 13,711   
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes      |  |         | (55       | ) |                  |   | 1,085     |  |       | 426    |  |              | (309    | ) |  |   | 1,147    
|Income tax expense (benefit)             |  |         | (102      | ) |                  |   | 384       |  |       | 150    |  |              | (106    | ) |  |   | 326      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                      |  | $       | 47        |   |                  | $ | 701       |  | $     | 276    |  | $            | (203    | ) |  |   | 821      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2009            |  | $       | 1,623,467 |   |                  | $ | 49,563    |  | $     | 7,625  |  | $            | (63,937 | ) |  | $ | 1,616,718
|                                         |  |         |           |   |                 
|For the three months ended June 30, 2008 |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)            |  | $       | 11,116    |   |                  | $ | 37        |  | $     | 22     |  | $            | (330    | ) |  | $ | 10,845   
|Provision for loan losses                |  |         | 3,777     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 3,777    
|Noninterest income                       |  |         | 541       |   |                  |   | 4,660     |  |       | 1,458  |  |              | (24     | ) |  |   | 6,635    
|Noninterest expense                      |  |         | 9,298     |   |                  |   | 2,725     |  |       | 1,049  |  |              |        |   |  |   | 13,072   
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes      |  |         | (1,418    | ) |                  |   | 1,972     |  |       | 431    |  |              | (354    | ) |  |   | 631      
|Income tax expense (benefit)             |  |         | (586      | ) |                  |   | 709       |  |       | 154    |  |              | (127    | ) |  |   | 150      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                      |  | $       | (832      | ) |                  | $ | 1,263     |  | $     | 277    |  | $            | (227    | ) |  | $ | 481      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2008            |  | $       | 1,472,045 |   |                  | $ | 48,146    |  | $     | 13,188 |  | $            | (72,666 | ) |  | $ | 1,460,713
|                                         |  |         |           |   |                 
|For the six months ended June 30, 2009   |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)            |  | $       | 23,462    |   |                  | $ | 76        |  | $     | 6      |  | $            | (625    | ) |  | $ | 22,919   
|Provision for loan losses                |  |         | 5,966     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 5,966    
|Noninterest income                       |  |         | 1,421     |   |                  |   | 7,836     |  |       | 3,174  |  |              |        |   |  |   | 12,431   
|Noninterest expense                      |  |         | 18,220    |   |                  |   | 6,138     |  |       | 2,090  |  |              |        |   |  |   | 26,448   
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes      |  |         | 697       |   |                  |   | 1,774     |  |       | 1,090  |  |              | (625    | ) |  |   | 2,936    
|Income tax expense (benefit)             |  |         | 189       |   |                  |   | 627       |  |       | 383    |  |              | (219    | ) |  |   | 980      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                      |  | $       | 508       |   |                  | $ | 1,147     |  | $     | 707    |  | $            | (406    | ) |  | $ | 1,956    
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2009            |  | $       | 1,623,467 |   |                  | $ | 49,563    |  | $     | 7,625  |  | $            | (63,937 | ) |  | $ | 1,616,718
|                                         |  |         |           |   |                 
|For the six months ended June 30, 2008   |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)            |  | $       | 21,246    |   |                  | $ | 101       |  | $     | 63     |  | $            | (686    | ) |  | $ | 20,724   
|Provision for loan losses                |  |         | 5,278     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 5,278    
|Noninterest income                       |  |         | 1,032     |   |                  |   | 9,067     |  |       | 3,190  |  |              | (5      | ) |  |   | 13,284   
|Noninterest expense                      |  |         | 18,373    |   |                  |   | 5,795     |  |       | 2,153  |  |              |        |   |  |   | 26,321   
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes      |  |         | (1,373    | ) |                  |   | 3,373     |  |       | 1,100  |  |              | (691    | ) |  |   | 2,409    
|Income tax expense (benefit)             |  |         | (601      | ) |                  |   | 1,213     |  |       | 394    |  |              | (248    | ) |  |   | 758      
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                      |  | $       | (772      | ) |                  | $ | 2,160     |  | $     | 706    |  | $            | (443    | ) |  | $ | 1,651    
|                                         |  |         |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2008            |  | $       | 1,472,045 |   |                  | $ | 48,146    |  | $     | 13,188 |  | $            | (72,666 | ) |  | $ | 1,460,713



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

Special Cautionary Note 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, factors that could contribute to those differences include, but are not limited to:



| |  |  | general business or economic conditions, either nationally, regionally or in the local markets we serve, may be less favorable than expected, resulting 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | 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 cost or reduced liquidity;
| | - |  | --------------------------------------------------------------------------------------



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



| |  |  | 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.

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 June 30, 2009, 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 $187.8 million and $2.3 billion in assets under management.



21



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##### Table of Contents

In the second quarter of 2009, we reclassified net expenses of foreclosed real estate from other noninterest income to
other 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.

Results of Operations

Net earnings for the quarter ended June 30, 2009 were $821,000, compared with $481,000
for the quarter ended June 30, 2008. Earnings per diluted common share for the second quarter of 2009 were $0.02, compared with $0.04 for the comparable period of 2008. The decrease in diluted earnings per share was due primarily to the accrual
of dividends on preferred stock which was issued in the fourth quarter of 2008. Results for the second quarter of 2009 include an improvement in net interest income on a fully taxable-equivalent basis (TE) of $736,000, or 6.8%, and a decrease in the
provision for loan losses of $850,000. Partially offsetting these improvements was a $639,000 increase in noninterest expense, which was due primarily to a special assessment from the FDIC.

We posted a return on average common equity of 0.67% and 1.21%, a return on average assets of 0.21% and 0.13%, and an efficiency ratio of 76.14% and 73.71% for the
quarters ended June 30, 2009 and 2008. The efficiency ratio is calculated by dividing total noninterest expense (excluding amortization of intangibles) by the sum of net interest income and noninterest income (excluding gains or losses on sales
of securities).

Net earnings for the six months ended June 30, 2009 were $2.0 million, compared with $1.7 million, for the same period of 2008.
Earnings per diluted common share for the six months ended June 30, 2009 were $0.08 compared with $0.15 for the same period of 2008. Net interest income (TE) increased by $2.4 million, but this increase was partly offset by a $688,000 increase
in the provision for loan losses and a $853,000 decrease in noninterest income. We posted a return on average common equity of 1.08% and 2.08%, a return on average assets of 0.25% and 0.23%, and an efficiency ratio of 73.86% and 76.29% for the six
months ended June 30, 2009 and 2008.

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 (TE) was $11.6 million for the three months ended June 30, 2009, an increase of $736,000, or 6.8%, compared with the
second quarter of 2008. Average earning assets grew $110.4 million, or 7.9%, due primarily to growth in securities. The net interest margin (TE) decreased 4 basis points to 3.09% for the same comparison period. The margin compression was due in part
to greater liquidity on the balance sheet and a shifting in the deposit mix as clients have moved to certificates of deposit in pursuit of higher yields. In addition, average noninterest-bearing deposits were $159.3 million for the second quarter of
2009, a $35.8 million, or 29.0%, increase compared with the same period of 2008.

Net interest income (TE) was $23.1 million for the six months ended
June 30, 2009, an increase of $2.4 million, or 11.6%, compared with the same period of 2008. Average interest-earning assets increased $125.7 million, or 9.2%, due primarily to growth in securities and loans. For the six months ended
June 30, 2009, the net interest margin (TE) was 3.11%, an increase of 8 basis points, compared with the same period of 2008. The improvement in the margin was due primarily to a falling interest rate environment and a steepening of the yield
curve. Average loans were $1.2 billion for the six months ended June 30, 2009, a $42.3 million, or 3.7%, increase compared with the same period of 2008.



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The following tables set 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 tables also set 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 in 2009. Taxable-equivalent amounts in 2008 were immaterial.



|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|------------------------------------------ |  | --------------------------- | --------- | - | ------------------- | - | ----------------- |  | ---- | ------------------------- |  | - | ------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended June 30, |          
|                                           |  | 2009                        |           |   | 2008                |  
|                                           |  | AverageOutstandingBalance   |           |   | InterestEarned/Paid |   | AverageYield/Rate |  |      | AverageOutstandingBalance |  |   | InterestEarned/Paid |   | AverageYield/Rate |  
|                                           |  | (dollars in thousands)      |          
|                                           |  |                             |           |   |                     |  
|Assets:                                    |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                   |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Loans (1)                                  |  | $                           | 1,166,448 |   |                     | $ | 17,291            |  | 5.95 | %                         |  | $ | 1,170,959           |   |                   | $ | 18,238 |  | 6.26 | %
|Mortgages held-for-sale                    |  |                             | 1,612     |   |                     |   | 32                |  | 7.96 |                           |  |   | 1,151               |   |                   |   | 25     |  | 8.74 |  
|Securities (1)                             |  |                             | 215,473   |   |                     |   | 2,173             |  | 4.04 |                           |  |   | 139,510             |   |                   |   | 1,250  |  | 3.60 |  
|Federal funds sold and other               |  |                             | 121,328   |   |                     |   | 156               |  | 0.52 |                           |  |   | 82,841              |   |                   |   | 552    |  | 2.68 |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets (1)          |  |                             | 1,504,861 |   |                     |   | 19,652            |  | 5.24 |                           |  |   | 1,394,461           |   |                   |   | 20,065 |  | 5.79 |  
|Less: Allowance for loan losses            |  |                             | (25,656   | ) |                     |   |                   |  |      |                           |  |   | (11,526             | ) |                   |   |        |  |      |  
|Noninterest-earning assets                 |  |                             | 111,519   |   |                     |   |                   |  |      |                           |  |   | 103,918             |   |                   |   |        |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total assets                               |  | $                           | 1,590,724 |   |                     |   |                   |  |      |                           |  | $ | 1,486,853           |   |                   |   |        |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Liabilities and shareholders equity:      |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:              |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest checking                          |  | $                           | 177,393   |   |                     | $ | 212               |  | 0.48 | %                         |  | $ | 194,973             |   |                   | $ | 641    |  | 1.32 | %
|Money market and savings                   |  |                             | 243,276   |   |                     |   | 685               |  | 1.13 |                           |  |   | 307,047             |   |                   |   | 1,363  |  | 1.79 |  
|Time deposits                              |  |                             | 564,583   |   |                     |   | 4,746             |  | 3.37 |                           |  |   | 466,199             |   |                   |   | 5,119  |  | 4.42 |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing deposits            |  |                             | 985,252   |   |                     |   | 5,643             |  | 2.30 |                           |  |   | 968,219             |   |                   |   | 7,123  |  | 2.96 |  
|Borrowings and repurchase agreements       |  |                             | 226,118   |   |                     |   | 2,119             |  | 3.76 |                           |  |   | 202,229             |   |                   |   | 1,767  |  | 3.51 |  
|Junior subordinated debentures             |  |                             | 20,619    |   |                     |   | 309               |  | 6.01 |                           |  |   | 20,619              |   |                   |   | 330    |  | 6.44 |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities         |  |                             | 1,231,989 |   |                     |   | 8,071             |  | 2.63 |                           |  |   | 1,191,067           |   |                   |   | 9,220  |  | 3.11 |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Noninterest-bearing liabilities:           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Noninterest-bearing deposits               |  |                             | 159,257   |   |                     |   |                   |  |      |                           |  |   | 123,453             |   |                   |   |        |  |      |  
|Other liabilities                          |  |                             | 11,366    |   |                     |   |                   |  |      |                           |  |   | 12,015              |   |                   |   |        |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                          |  |                             | 1,402,612 |   |                     |   |                   |  |      |                           |  |   | 1,326,535           |   |                   |   |        |  |      |  
|Shareholders equity                       |  |                             | 188,112   |   |                     |   |                   |  |      |                           |  |   | 160,318             |   |                   |   |        |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                           | 1,590,724 |   |                     |   |                   |  |      |                           |  | $ | 1,486,853           |   |                   |   |        |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Net interest income (1)                    |  |                             |           |   |                     | $ | 11,581            |  |      |                           |  |   |                     |   |                   | $ | 10,845 |  |      |  
|                                           |  |                             |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread (1)                    |  |                             |           |   |                     |   |                   |  | 2.61 | %                         |  |   |                     |   |                   |   |        |  | 2.68 | %
|Net interest margin (1)                    |  |                             |           |   |                     |   |                   |  | 3.09 | %                         |  |   |                     |   |                   |   |        |  | 3.13 | %



|(1) | On taxable-equivalent basis in 2009 to consistently reflect income from taxable and tax-exempt loans and securities based on a 34% federal tax rate. Taxable-equivalent amounts in
2008 were immaterial.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|------------------------------------------ |  | ------------------------- | --------- | - | ------------------- | - | ----------------- |  | ---- | ------------------------- |  | - | ------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                           |  | Six Months Ended June 30, |          
|                                           |  | 2009                      |           |   | 2008                |  
|                                           |  | AverageOutstandingBalance |           |   | InterestEarned/Paid |   | AverageYield/Rate |  |      | AverageOutstandingBalance |  |   | InterestEarned/Paid |   | AverageYield/Rate |  
|                                           |  | (dollars in thousands)    |          
|                                           |  |                           |           |   |                     |  
|Assets:                                    |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest-earning assets:                   |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Loans (1)                                  |  | $                         | 1,187,456 |   |                     | $ | 34,835            |  | 5.92 | %                         |  | $ | 1,145,199           |   |                   | $ | 36,616 |  | 6.43 | %
|Mortgages held-for-sale                    |  |                           | 1,502     |   |                     |   | 60                |  | 8.06 |                           |  |   | 1,308               |   |                   |   | 57     |  | 8.76 |  
|Securities (1)                             |  |                           | 201,789   |   |                     |   | 4,146             |  | 4.14 |                           |  |   | 140,804             |   |                   |   | 2,569  |  | 3.67 |  
|Federal funds sold and other               |  |                           | 108,393   |   |                     |   | 312               |  | 0.58 |                           |  |   | 86,130              |   |                   |   | 1,355  |  | 3.16 |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-earning assets (1)          |  |                           | 1,499,140 |   |                     |   | 39,353            |  | 5.29 |                           |  |   | 1,373,441           |   |                   |   | 40,597 |  | 5.94 |  
|Less: Allowance for loan losses            |  |                           | (25,420   | ) |                     |   |                   |  |      |                           |  |   | (11,352             | ) |                   |   |        |  |      |  
|Noninterest-earning assets                 |  |                           | 111,270   |   |                     |   |                   |  |      |                           |  |   | 103,092             |   |                   |   |        |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total assets                               |  | $                         | 1,584,990 |   |                     |   |                   |  |      |                           |  | $ | 1,465,181           |   |                   |   |        |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Liabilities and shareholders equity:      |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest-bearing liabilities:              |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Interest checking                          |  | $                         | 179,672   |   |                     | $ | 425               |  | 0.48 | %                         |  | $ | 188,728             |   |                   | $ | 1,594  |  | 1.70 | %
|Money market and savings                   |  |                           | 235,880   |   |                     |   | 1,363             |  | 1.17 |                           |  |   | 320,144             |   |                   |   | 3,743  |  | 2.35 |  
|Time deposits                              |  |                           | 559,821   |   |                     |   | 9,587             |  | 3.45 |                           |  |   | 450,398             |   |                   |   | 10,328 |  | 4.61 |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing deposits            |  |                           | 975,373   |   |                     |   | 11,375            |  | 2.35 |                           |  |   | 959,270             |   |                   |   | 15,665 |  | 3.28 |  
|Borrowings and repurchase agreements       |  |                           | 240,741   |   |                     |   | 4,235             |  | 3.55 |                           |  |   | 198,042             |   |                   |   | 3,522  |  | 3.58 |  
|Junior subordinated debentures             |  |                           | 20,619    |   |                     |   | 625               |  | 6.11 |                           |  |   | 20,619              |   |                   |   | 686    |  | 6.69 |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total interest-bearing liabilities         |  |                           | 1,236,733 |   |                     |   | 16,235            |  | 2.65 |                           |  |   | 1,177,931           |   |                   |   | 19,873 |  | 3.39 |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Noninterest-bearing liabilities:           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Noninterest-bearing deposits               |  |                           | 150,090   |   |                     |   |                   |  |      |                           |  |   | 115,179             |   |                   |   |        |  |      |  
|Other liabilities                          |  |                           | 10,820    |   |                     |   |                   |  |      |                           |  |   | 12,664              |   |                   |   |        |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities                          |  |                           | 1,397,643 |   |                     |   |                   |  |      |                           |  |   | 1,305,774           |   |                   |   |        |  |      |  
|Shareholders equity                       |  |                           | 187,347   |   |                     |   |                   |  |      |                           |  |   | 159,407             |   |                   |   |        |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                         | 1,584,990 |   |                     |   |                   |  |      |                           |  | $ | 1,465,181           |   |                   |   |        |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Net interest income (1)                    |  |                           |           |   |                     | $ | 23,118            |  |      |                           |  |   |                     |   |                   | $ | 20,724 |  |      |  
|                                           |  |                           |           |   |                     |   |                   |  |      |                           |  |   |                     |   |                   |   |        |  |      |  
|Net interest spread (1)                    |  |                           |           |   |                     |   |                   |  | 2.64 | %                         |  |   |                     |   |                   |   |        |  | 2.55 | %
|Net interest margin (1)                    |  |                           |           |   |                     |   |                   |  | 3.11 | %                         |  |   |                     |   |                   |   |        |  | 3.03 | %



|(1) | On taxable-equivalent basis in 2009 to consistently reflect income from taxable and tax-exempt loans and securities based on a 34% federal tax rate. Taxable-equivalent amounts in
2008 were immaterial.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 we consider adequate in relation to the estimated losses
inherent in the loan portfolio. The provision was $2.9 million and $6.0 million for the three months and six months ended June 30, 2009, compared with $3.8 million and $5.3 million for the same periods of 2008. The changes in the provision in
both periods compared with the same periods of 2008 reflect the amount we considered necessary to fund estimated losses inherent in the loan portfolio primarily as a result of the recessionary economic environment, weakness in our Florida market,
higher net charge-offs in 2009 and other qualitative factors.

Noninterest Income

Noninterest income represented 35.57% and 37.96% of total revenue for the three months ended June 30, 2009 and 2008.

Noninterest income decreased $308,000, or 4.6%, to $6.3 million for the three months ended June 30, 2009, compared with the same period in 2008. The decrease was due primarily to a $573,000, or 12.3%, decrease in trust and investment
management fees. The decline in trust and investment management fees was due to a 16.0% decrease in assets under



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management, as a result of depreciation in values of equity markets. Partly offsetting this decline in trust and investment management fees was a gain of
$222,000 on sale of approximately $9.7 million in second mortgage loans during the second quarter of 2009.

Noninterest income decreased $853,000, or 6.4%,
to $12.4 million for the six months ended June 30, 2009, compared with the same period in 2008. The decrease was due primarily to a $1.2 million, or 13.6%, decrease in trust and investment management fees.

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



|                                     |  |                            |       |                          |   |       |  |      |        |  |   |       
|------------------------------------ |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                     |  | Three MonthsEnded June 30, |       | Six MonthsEnded June 30,
|                                     |  | 2009                       |       | 2008                     |   | 2009  |  | 2008
|                                     |  | (dollars in thousands)    
|Trust and investment management fees |  | $                          | 4,087 |                          | $ | 4,660 |  | $    | 7,836  |  | $ | 9,067 
|Mortgage banking                     |  |                            | 351   |                          |   | 135   |  |      | 502    |  |   | 189   
|Insurance commissions and fees       |  |                            | 1,404 |                          |   | 1,385 |  |      | 3,014  |  |   | 3,112 
|Other                                |  |                            | 485   |                          |   | 455   |  |      | 1,079  |  |   | 916   
|                                     |  |                            |       |                          |   |       |  |      |        |  |   |       
|Total noninterest income             |  | $                          | 6,327 |                          | $ | 6,635 |  | $    | 12,431 |  | $ | 13,284
|                                     |  |                            |       |                          |   |       |  |      |        |  |   |       

Noninterest Expense

Noninterest expense was $13.7 million for the second quarter of 2009, up $639,000, or 4.9%, compared with the second quarter of 2008, primarily due to a special FDIC assessment of $684,000, which was levied on all banks to replenish the
FDIC insurance fund. In addition, we recorded higher professional fees, which were primarily related to higher legal and audit fees at Encore Bank.

Noninterest expense for the six months ended June 30, 2009 was $26.4 million, essentially flat with the same period of 2008. The special FDIC assessment was offset by lower compensation expense in 2009 primarily due to a severance
charge in 2008 and no such charge in 2009.

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



|                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                          |  | Three MonthsEnded June 30, |        | Six MonthsEnded June 30,
|                          |  | 2009                       |        | 2008                     |   | 2009   |  | 2008
|                          |  | (dollars in thousands)    
|Compensation              |  | $                          | 7,231  |                          | $ | 7,467  |  | $    | 14,745 |  | $ | 15,545
|Non-staff expenses:       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Occupancy                 |  |                            | 1,554  |                          |   | 1,485  |  |      | 3,008  |  |   | 2,923 
|Equipment                 |  |                            | 449    |                          |   | 487    |  |      | 882    |  |   | 1,018 
|Advertising and promotion |  |                            | 200    |                          |   | 219    |  |      | 416    |  |   | 423   
|Outside data processing   |  |                            | 783    |                          |   | 717    |  |      | 1,547  |  |   | 1,411 
|Professional fees         |  |                            | 1,043  |                          |   | 739    |  |      | 1,979  |  |   | 1,895 
|Intangible amortization   |  |                            | 169    |                          |   | 188    |  |      | 340    |  |   | 375   
|FDIC assessment           |  |                            | 746    |                          |   | 30     |  |      | 798    |  |   | 61    
|Other                     |  |                            | 1,536  |                          |   | 1,740  |  |      | 2,733  |  |   | 2,670 
|                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total noninterest expense |  | $                          | 13,711 |                          | $ | 13,072 |  | $    | 26,448 |  | $ | 26,321
|                          |  |                            |        |                          |   |        |  |      |        |  |   |       

Income Tax Expense

The provision for income taxes increased to $326,000 for the three months ended June 30, 2009, compared with $150,000 for the same three months of 2008. The effective tax rate for the three months ended June 30, 2009 and 2008 was
28.4% and 23.8%. The provision for income taxes increased to $980,000 for the six months ended June 30, 2009, compared with $758,000 for the same period of 2008. The effective tax rate for the six months ended June 30, 2009 and 2008 was
33.4% and 31.5%.



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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 included in our Annual Report on Form 10-K for the year ended December 31, 2008.

The following table presents the net earnings 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 June 30, 2009    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)       |  | $                      | 11,726    |   |                  | $ | 38        |  | $     | 3      |  | $            | (309    | ) |  | $ | 11,458   
|Provision for loan losses           |  |                        | 2,927     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 2,927    
|Noninterest income                  |  |                        | 760       |   |                  |   | 4,087     |  |       | 1,480  |  |              |        |   |  |   | 6,327    
|Noninterest expense                 |  |                        | 9,614     |   |                  |   | 3,040     |  |       | 1,057  |  |              |        |   |  |   | 13,711   
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes |  |                        | (55       | ) |                  |   | 1,085     |  |       | 426    |  |              | (309    | ) |  |   | 1,147    
|Income tax expense (benefit)        |  |                        | (102      | ) |                  |   | 384       |  |       | 150    |  |              | (106    | ) |  |   | 326      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                 |  | $                      | 47        |   |                  | $ | 701       |  | $     | 276    |  | $            | (203    | ) |  | $ | 821      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2009       |  | $                      | 1,623,467 |   |                  | $ | 49,563    |  | $     | 7,625  |  | $            | (63,937 | ) |  | $ | 1,616,718
|                                    |  |                        |           |   |                 
|Three months ended June 30, 2008    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)       |  | $                      | 11,116    |   |                  | $ | 37        |  | $     | 22     |  | $            | (330    | ) |  | $ | 10,845   
|Provision for loan losses           |  |                        | 3,777     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 3,777    
|Noninterest income                  |  |                        | 541       |   |                  |   | 4,660     |  |       | 1,458  |  |              | (24     | ) |  |   | 6,635    
|Noninterest expense                 |  |                        | 9,298     |   |                  |   | 2,725     |  |       | 1,049  |  |              |        |   |  |   | 13,072   
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes |  |                        | (1,418    | ) |                  |   | 1,972     |  |       | 431    |  |              | (354    | ) |  |   | 631      
|Income tax expense (benefit)        |  |                        | (586      | ) |                  |   | 709       |  |       | 154    |  |              | (127    | ) |  |   | 150      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                 |  | $                      | (832      | ) |                  | $ | 1,263     |  | $     | 277    |  | $            | (227    | ) |  | $ | 481      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2008       |  | $                      | 1,472,045 |   |                  | $ | 48,146    |  | $     | 13,188 |  | $            | (72,666 | ) |  | $ | 1,460,713
|                                    |  |                        |           |   |                 
|Six months ended June 30, 2009      |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)       |  | $                      | 23,462    |   |                  | $ | 76        |  | $     | 6      |  | $            | (625    | ) |  | $ | 22,919   
|Provision for loan losses           |  |                        | 5,966     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 5,966    
|Noninterest income                  |  |                        | 1,421     |   |                  |   | 7,836     |  |       | 3,174  |  |              |        |   |  |   | 12,431   
|Noninterest expense                 |  |                        | 18,220    |   |                  |   | 6,138     |  |       | 2,090  |  |              |        |   |  |   | 26,448   
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes |  |                        | 697       |   |                  |   | 1,774     |  |       | 1,090  |  |              | (625    | ) |  |   | 2,936    
|Income tax expense (benefit)        |  |                        | 189       |   |                  |   | 627       |  |       | 383    |  |              | (219    | ) |  |   | 980      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                 |  | $                      | 508       |   |                  | $ | 1,147     |  | $     | 707    |  | $            | (406    | ) |  | $ | 1,956    
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2009       |  | $                      | 1,623,467 |   |                  | $ | 49,563    |  | $     | 7,625  |  | $            | (63,937 | ) |  | $ | 1,616,718
|                                    |  |                        |           |   |                 
|Six months ended June 30, 2008      |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net interest income (expense)       |  | $                      | 21,246    |   |                  | $ | 101       |  | $     | 63     |  | $            | (686    | ) |  | $ | 20,724   
|Provision for loan losses           |  |                        | 5,278     |   |                  |   |          |  |       |       |  |              |        |   |  |   | 5,278    
|Noninterest income                  |  |                        | 1,032     |   |                  |   | 9,067     |  |       | 3,190  |  |              | (5      | ) |  |   | 13,284   
|Noninterest expense                 |  |                        | 18,373    |   |                  |   | 5,795     |  |       | 2,153  |  |              |        |   |  |   | 26,321   
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Earnings (loss) before income taxes |  |                        | (1,373    | ) |                  |   | 3,373     |  |       | 1,100  |  |              | (691    | ) |  |   | 2,409    
|Income tax expense (benefit)        |  |                        | (601      | ) |                  |   | 1,213     |  |       | 394    |  |              | (248    | ) |  |   | 758      
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Net earnings (loss)                 |  | $                      | (772      | ) |                  | $ | 2,160     |  | $     | 706    |  | $            | (443    | ) |  | $ | 1,651    
|                                    |  |                        |           |   |                  |   |           |  |       |        |  |              |         |   |  |   |          
|Total assets at June 30, 2008       |  | $                      | 1,472,045 |   |                  | $ | 48,146    |  | $     | 13,188 |  | $            | (72,666 | ) |  | $ | 1,460,713



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##### Table of Contents

Banking

Our banking
segment had net earnings of $47,000 for the three months ended June 30, 2009, compared with a loss of $832,000 for the same period in 2008. Net interest income increased $610,000, or 5.5%, and the provision for loan losses decreased $850,000.
Net earnings for the six months ended June 30, 2009 was $508,000, compared with a net loss of $772,000 for same period in 2008. Net interest income increased $2.2 million, or 10.4%, and noninterest income increased $389,000, while the provision
for loan losses increased $688,000.

Net interest income for the three months ended June 30, 2009 increased $610,000, or 5.5%, compared with the same
period of 2008. Net interest income for the six months ended June 30, 2009 increased $2.2 million, or 10.4%, compared with the same period of 2008. The increase in both periods resulted primarily from an increase in the volume of
interest-earning assets. 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 June 30, 2009 totaled $2.9 million, compared with $3.8 million for the same period of 2008. The provision for loan losses for the six months ended June 30, 2009 totaled $6.0
million, compared with $5.3 million for the same period of 2008. 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 June 30, 2009 increased $219,000 compared with the same period in 2008. Noninterest income for the six months ended
June 30, 2009 increased $389,000 compared with the same period of 2008. The increase in both periods was due primarily to higher mortgage banking income.

Noninterest expense for the three months ended June 30, 2009 increased $316,000, or 3.4%, primarily due to the FDIC special assessment. Noninterest expense for the six months ended June 30, 2009 was essentially flat compared with
the same period of 2008, as the special FDIC assessment was offset by a lower compensation expense, resulting from a severance expense in the first quarter of 2008.

Wealth Management

Net earnings for the three months ended June 30, 2009 decreased $562,000, or 44.5%, compared
with the same period in 2008. Net earnings for the six months ended June 30, 2009 decreased $1.0 million, or 46.9%, compared with the same period in 2008. The decrease in earnings in both periods was due primarily to a decrease in assets under
management, resulting in a decline in fees. Assets under management decreased 16.0% from June 30, 2008 to $2.3 billion as of June 30, 2009.

Noninterest income for the three months ended June 30, 2009 decreased $573,000, or 12.3%, compared with the same period in 2008, due primarily to the aforementioned decrease in assets under management. Noninterest income for the six
months ended June 30, 2009, decreased $1.2 million, or 13.6%.

Noninterest expense for the three months ended June 30, 2009 increased $315,000,
or 11.6%, compared with the same period in 2008, due primarily to a credit in 2008 for a legal settlement. Noninterest expense for the six months ended June 30, 2009 increased $343,000, or 5.9%.

Insurance

Net earnings, noninterest income and noninterest expense
for the three months and six months ended June 30, 2009 were flat compared with the same periods of 2008.

Other

Other consists 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 $28.9 million, or 1.8%, to $1.6 billion as of June 30, 2009 compared with December 31, 2008. Our loan portfolio declined $69.6 million, or 5.7%, to $1.1 billion as of June 30,
2009. Our securities portfolio increased $66.3 million, or 38.0%, to $241.0 million compared with $174.7 million as of December 31, 2008. Shareholders equity increased $2.1 million, or 1.1%, to $187.8 million compared with $185.7 million
as of December 31, 2008.

Loan Portfolio

Our
primary lending focus is to professional firms, privately-owned businesses, investors 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 44.6% of our portfolio as of June 30, 2009. Total consumer loans, which consist of residential real estate, home
equity lines of credit, consumer installment-indirect and other consumer loans, made up 55.4% of our loan portfolio as of June 30, 2009.



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Total loans were $1.1 billion as of June 30, 2009, a decrease of $69.6 million, or 5.7%, compared with
December 31, 2008. The decrease in the loan portfolio was due to a combination of our construction portfolio, which experienced pay downs due to a slowdown in residential real estate construction in Houston and to our consumer loan portfolios
as we experienced a rise in refinancing in our first and second mortgage portfolios and pay downs in our HELOC, auto and other consumer loans. In April and June, we sold second mortgage loans totaling approximately $9.7 million. We extended
approximately $100.4 million in new credit during the second quarter of 2009 to consumers and businesses.

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



|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|----------------------------------- |  | ---------------------- | --------- | ------- | ---------------- | - | ------ | - | --------- |  | ----- | -
|                                    |  | June 30,2009           |           |         | December 31,2008 |  
|                                    |  | Amount                 |           | Percent |                  |   | Amount |   | Percent   | 
|                                    |  | (dollars in thousands) |          
|Commercial:                         |  |                        |           |         |                  |   |        |   |           |  |       |  
|Commercial                          |  | $                      | 126,079   |         | 11.0             | % |        | $ | 135,534   |  | 11.1  | %
|Commercial real estate              |  |                        | 308,441   |         | 26.8             |   |        |   | 311,909   |  | 25.6  |  
|Real estate construction            |  |                        | 78,045    |         | 6.8              |   |        |   | 95,668    |  | 7.9   |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total commercial                    |  |                        | 512,565   |         | 44.6             |   |        |   | 543,111   |  | 44.6  |  
|                                    |  |                        |           |        
|Consumer:                           |  |                        |           |         |                  |   |        |   |           |  |       |  
|Residential real estate first lien  |  |                        | 232,885   |         | 20.3             |   |        |   | 241,969   |  | 19.8  |  
|Residential real estate second lien |  |                        | 292,891   |         | 25.5             |   |        |   | 302,141   |  | 24.8  |  
|Home equity lines                   |  |                        | 77,793    |         | 6.8              |   |        |   | 82,555    |  | 6.8   |  
|Consumer installment - indirect     |  |                        | 11,202    |         | 1.0              |   |        |   | 14,409    |  | 1.2   |  
|Consumer other                      |  |                        | 21,484    |         | 1.8              |   |        |   | 34,219    |  | 2.8   |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total consumer                      |  |                        | 636,255   |         | 55.4             |   |        |   | 675,293   |  | 55.4  |  
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  
|Total loans receivable              |  | $                      | 1,148,820 |         | 100.0            | % |        | $ | 1,218,404 |  | 100.0 | %
|                                    |  |                        |           |         |                  |   |        |   |           |  |       |  

Nonperforming Assets

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



|                                                                  |  |                        |        |   |                  |   |        |  
|----------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                  |  | June 30,2009           |        |   | December 31,2008 |  
|                                                                  |  | (dollars in thousands) |       
|Nonaccrual loans                                                  |  | $                      | 28,552 |   |                  | $ | 30,531 |  
|Accruing loans past due 90 days or more (1)                       |  |                        |       |   |                  |   | 646    |  
|Restructured loans (2)                                            |  |                        |       |   |                  |   |       |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonperforming loans                                         |  |                        | 28,552 |   |                  |   | 31,177 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Investment in real estate                                         |  |                        | 8,032  |   |                  |   | 2,781  |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonperforming assets                                        |  | $                      | 36,584 |   |                  | $ | 33,958 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Nonperforming assets to total loans and investment in real estate |  |                        | 3.16   | % |                  |   | 2.78   | %



|(1) | Beginning in 2009, loans past due 90 days or more are either charged-off or included in nonaccrual loans.
|--- | ---------------------------------------------------------------------------------------------------------

|(2) | All troubled debt restructurings are included in nonaccrual loans.
|--- | ------------------------------------------------------------------

Nonperforming assets were $36.6 million and $34.0 million as of June 30, 2009 and December 31, 2008. Our ratio of nonperforming assets to total loans and investment in real estate was 3.16% and 2.78% as of June 30, 2009 and
December 31, 2008. Investment in real estate was $8.0 million at June 30, 2009 compared with $2.8 million at December 31, 2008, a $5.3 million increase due primarily to repossession of commercial real estate property in Florida and
several homes under construction in Houston.



28



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##### Table of Contents

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



|                                                          |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|--------------------------------------------------------- |  | ------------------ | ------ | ------------------------------ | - | ------------------ |  | ------------------------------ | ------ |  | - | -----
|                                                          |  | June 30, 2009      |        | December 31, 2008             
|                                                          |  | OutstandingBalance |        | SpecificAllocation ofAllowance |   | OutstandingBalance |  | SpecificAllocation ofAllowance
|Commercial:                                               |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|Commercial                                                |  | $                  | 1,831  |                                | $ | 1,534              |  | $                              | 5,643  |  | $ | 4,267
|Commercial real estate                                    |  |                    | 14,136 |                                |   | 2,116              |  |                                | 11,166 |  |   | 1,628
|Real estate construction                                  |  |                    | 5,245  |                                |   | 1,541              |  |                                | 9,975  |  |   | 1,393
|                                                          |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|Total commercial                                          |  |                    | 21,212 |                                |   | 5,191              |  |                                | 26,784 |  |   | 7,288
|Consumer:                                                 |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|Residential real estate first lien (1)                    |  |                    | 5,898  |                                |   |                   |  |                                | 3,601  |  |   |     
|Residential real estate second lien and home equity lines |  |                    | 1,363  |                                |   |                   |  |                                | 731    |  |   |     
|Consumer                                                  |  |                    | 79     |                                |   |                   |  |                                | 61     |  |   |     
|                                                          |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|Total consumer                                            |  |                    | 7,340  |                                |   |                   |  |                                | 4,393  |  |   |     
|                                                          |  |                    |        |                                |   |                    |  |                                |        |  |   |      
|Total nonperforming loans                                 |  | $                  | 28,552 |                                | $ | 5,191              |  | $                              | 31,177 |  | $ | 7,288
|                                                          |  |                    |        |                                |   |                    |  |                                |        |  |   |      



|(1) | Adjusted to fair value after 180 days past due.
|--- | -----------------------------------------------

The decrease in
nonaccrual commercial loans was primarily attributable to the payoff of a $3.0 million loan to a lawyer in Houston. This decrease was partially offset by the addition of several commercial real estate loans in Florida. Nonaccrual construction loans
decreased primarily due to the repossession of properties securing a $2.4 million loan to a Houston residential builder. The increase in residential real estate first lien nonaccrual loans was due primarily to residential loans in Florida.

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.



29



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##### Table of Contents

Allowance for Loan Losses

Our allowance for loan losses is a reserve 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 estimated
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 estimated 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.

Net charge-offs for the first six months of 2009 were $5.9 million, or
0.99% of average total loans on an annualized basis, compared with $4.4 million, or 0.77% of average total loans on an annualized basis for the first six months of 2008. The increase was due primarily to a rise in first mortgage net charge-offs,
which consisted mostly of loans in Florida. We also experienced a modest increase in second mortgage net charge-offs, which resulted from the deteriorating economy. Net charge-offs in the first six months of 2008 include a $2.1 million partial
charge-off of a loan to a Houston law firm.



30



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##### Table of Contents

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



|                                                          |  |                                               |           |   |                                             |   |           |  
|--------------------------------------------------------- |  | --------------------------------------------- | --------- | - | ------------------------------------------- | - | --------- | -
|                                                          |  | As of and forthe Six MonthsEnded June 30,2009 |           |   | As of and forthe Year EndedDecember 31,2008 |  
|                                                          |  | (dollars in thousands)                        |          
|Average loans outstanding                                 |  | $                                             | 1,187,456 |   |                                             | $ | 1,170,717 |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total loans outstanding at end of period                  |  | $                                             | 1,148,820 |   |                                             | $ | 1,218,404 |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Allowance for loan losses at beginning of period          |  | $                                             | 25,105    |   |                                             | $ | 11,161    |  
|                                                          |  |                                              
|Charge-offs:                                              |  |                                               |           |   |                                             |   |           |  
|Commercial:                                               |  |                                               |           |   |                                             |   |           |  
|Commercial                                                |  |                                               | (1,032    | ) |                                             |   | (8,601    | )
|Commercial real estate                                    |  |                                               | (656      | ) |                                             |   | (1,527    | )
|Real estate construction                                  |  |                                               | (713      | ) |                                             |   | (830      | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total commercial                                          |  |                                               | (2,401    | ) |                                             |   | (10,958   | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Consumer:                                                 |  |                                               |           |   |                                             |   |           |  
|Residential real estate first lien                        |  |                                               | (1,480    | ) |                                             |   | (634      | )
|Residential real estate second lien                       |  |                                               | (1,088    | ) |                                             |   | (1,323    | )
|Home equity lines                                         |  |                                               | (799      | ) |                                             |   | (1,813    | )
|Consumer installment - indirect                           |  |                                               | (411      | ) |                                             |   | (1,016    | )
|Consumer other                                            |  |                                               | (57       | ) |                                             |   | (80       | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total consumer                                            |  |                                               | (3,835    | ) |                                             |   | (4,866    | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total charge-offs                                         |  |                                               | (6,236    | ) |                                             |   | (15,824   | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Recoveries:                                               |  |                                               |           |   |                                             |   |           |  
|Commercial:                                               |  |                                               |           |   |                                             |   |           |  
|Commercial                                                |  |                                               | 84        |   |                                             |   | 139       |  
|Commercial real estate                                    |  |                                               |          |   |                                             |   | 6         |  
|Real estate construction                                  |  |                                               | 6         |   |                                             |   |          |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total commercial                                          |  |                                               | 90        |   |                                             |   | 145       |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Consumer:                                                 |  |                                               |           |   |                                             |   |           |  
|Residential real estate first lien                        |  |                                               | 35        |   |                                             |   | 41        |  
|Residential real estate second lien                       |  |                                               | 30        |   |                                             |   | 130       |  
|Home equity lines                                         |  |                                               | 112       |   |                                             |   | 9         |  
|Consumer installment - indirect                           |  |                                               | 112       |   |                                             |   | 139       |  
|Consumer other                                            |  |                                               |          |   |                                             |   | 129       |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total consumer                                            |  |                                               | 289       |   |                                             |   | 448       |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Total recoveries                                          |  |                                               | 379       |   |                                             |   | 593       |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|Net charge-offs                                           |  |                                               | (5,857    | ) |                                             |   | (15,231   | )
|                                                          |  |                                               |           |   |                                             |   |           |  
|Provision for loan losses                                 |  |                                               | 5,966     |   |                                             |   | 29,175    |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|                                                          |  |                                              
|Allowance for loan losses at end of period                |  | $                                             | 25,214    |   |                                             | $ | 25,105    |  
|                                                          |  |                                               |           |   |                                             |   |           |  
|                                                          |  |                                              
|Ratio of net charge-offs to average loans                 |  |                                               | 0.99      | % |                                             |   | 1.30      | %
|Ratio of allowance for loan losses to period end loans    |  |                                               | 2.19      |   |                                             |   | 2.06      |  
|Ratio of allowance for loan losses to nonperforming loans |  |                                               | 88.31     |   |                                             |   | 80.52     |  



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##### Table of Contents

Securities

Total
securities were $241.0 million as of June 30, 2009, an increase of $66.3 million, or 38.0%, compared with $174.7 million as of December 31, 2008. The increase was due to securities purchases which consisted of U.S. Government, municipal
and corporate bonds.

Deposits

Our deposits averaged
$1.1 billion for the six months ended June 30, 2009, an increase of $64.1 million, or 6.0%, over average deposits for the year ended December 31, 2008. As of June 30, 2009, core deposits (which consist of noninterest-bearing deposits,
interest checking, money market and savings and time deposits less than $100,000) were $832.3 million, or 70.7%, of total deposits, while time deposits $100,000 and greater and brokered deposits made up 29.3% of total deposits. As of June 30,
2009, total deposits increased $75.7 million, or 6.9%, to $1.2 billion compared with total deposits as of December 31, 2008. The increase was due primarily to an increase in business money market accounts and certificates of deposit.

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



|                                   |  |                               |           |             |                             |   |                |   |             |  |      |  
|---------------------------------- |  | ----------------------------- | --------- | ----------- | --------------------------- | - | -------------- | - | ----------- |  | ---- | -
|                                   |  | Six Months EndedJune 30, 2009 |           |             | Year EndedDecember 31, 2008 |  
|                                   |  | AverageBalance                |           | AverageRate |                             |   | AverageBalance |   | AverageRate | 
|                                   |  | (dollars in thousands)        |          
|Noninterest-bearing deposits       |  | $                             | 150,090   |             |                            | % |                | $ | 120,682     |  |     | %
|Interest checking                  |  |                               | 179,672   |             | 0.48                        |   |                |   | 187,412     |  | 1.34 |  
|Money market and savings           |  |                               | 235,880   |             | 1.17                        |   |                |   | 291,749     |  | 1.97 |  
|Time deposits less than $100,000   |  |                               | 207,255   |             | 3.60                        |   |                |   | 195,321     |  | 4.39 |  
|                                   |  |                               |           |             |                             |   |                |   |             |  |      |  
|Core deposits                      |  |                               | 772,897   |             | 1.43                        |   |                |   | 795,164     |  | 2.12 |  
|                                   |  |                               |           |             |                             |   |                |   |             |  |      |  
|Time deposits $100,000 and greater |  |                               | 318,523   |             | 3.44                        |   |                |   | 239,696     |  | 4.25 |  
|Brokered deposits                  |  |                               | 34,043    |             | 2.64                        |   |                |   | 26,458      |  | 3.15 |  
|                                   |  |                               |           |             |                             |   |                |   |             |  |      |  
|Total deposits                     |  | $                             | 1,125,463 |             | 2.04                        | % |                | $ | 1,061,318   |  | 2.63 | %
|                                   |  |                               |           |             |                             |   |                |   |             |  |      |  

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 customers using investment
securities as collateral and have issued junior subordinated debentures to subsidiary trusts.

Our borrowings and repurchase agreements were $223.2 million
as of June 30, 2009. The outstanding balance as of June 30, 2009 includes $210.0 million in long term advances and $13.3 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 $48.8 million, or 17.9%, to $223.2 million as of June 30, 2009 from $272.0 million as of December 31, 2008. The decrease was due primarily to a decrease in repurchase agreements with clients, as clients shifted
into demand deposit accounts.



32



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##### Table of Contents

The following table summarizes our two issues of junior subordinated debentures outstanding as of June 30, 2009:



|                 |  |                           |  |                                     |        |                                 |      |   |                   |                      |                     |                       |                                      |   |                   |  |          
|---------------- |  | ------------------------- |  | ----------------------------------- | ------ | ------------------------------- | ---- | - | ----------------- | -------------------- | ------------------- | --------------------- | ------------------------------------ | - | ----------------- |  | ---------
|Description      |  | Issuanceand CallDates (1) |  | TrustPreferredSecuritiesOutstanding |        | InterestRate as ofJune 30, 2009 |      |   | Fixed/ Adjustable |                      | Interest Rate Basis |                       | JuniorSubordinatedDebt Owedto Trusts |   | FinalMaturityDate
|                 |  |                           |  |                                     |        | (dollars in thousands)          |      |   |                   |                      |                     |                      
|Encore Statutory |  |                           |  |                                     |        |                                 |      |   |                   |                      |                     |                       |                                      |   |                   |  |          
|Trust II         |  | 9/17/2003                 |  | $                                   | 5,000  |                                 | 3.56 | % |                   | Adjustable quarterly |                     | 3 month LIBOR + 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. As of June 30, 2009, our year-to-date average deposits were $1.1 billion, or 71.0% of average total assets.

Shareholders Equity

Shareholders equity increased $2.1
million, or 1.1%, to $187.8 million as of June 30, 2009 compared with $185.7 million as of December 31, 2008, primarily due to net earnings.

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 Office of the Comptroller of the Currency (OCC) and we, as a financial 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.



33



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##### Table of Contents

The following table presents capital amounts and ratios for us and Encore Bank as of June 30, 2009:



|                        |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|----------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ---------------------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                        |  | Actual                 |         |       | For CapitalAdequacyPurposes |   |        | To Be Categorized asWell CapitalizedUnder Prompt CorrectiveAction Provisions |       
|                        |  | Amount                 |         | Ratio |                             |   | Amount |                                                                              | Ratio  |  |      | Amount |  | Ratio |        
|                        |  | (dollars in thousands) |        
|Encore Bancshares, Inc. |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Leverage                |  | $                      | 174,656 |       | 11.22                       | % |        | $                                                                            | 62,286 |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Tier 1 risk-based       |  |                        | 174,656 |       | 14.99                       |   |        |                                                                              | 46,617 |  | 4.00 |        |  |       | N/A     |  | N/A   |  
|Total risk-based        |  |                        | 189,363 |       | 16.25                       |   |        |                                                                              | 93,235 |  | 8.00 |        |  |       | N/A     |  | N/A   |  
|                        |  |                        |         |       |                             |  
|Encore Bank, N.A.       |  |                        |         |       |                             |   |        |                                                                              |        |  |      |        |  |       |         |  |       |  
|Leverage                |  | $                      | 142,658 |       | 9.19                        | % |        | $                                                                            | 62,117 |  | 4.00 | %      |  | $     | 77,646  |  | 5.00  | %
|Tier 1 risk-based       |  |                        | 142,658 |       | 12.27                       |   |        |                                                                              | 46,521 |  | 4.00 |        |  |       | 69,781  |  | 6.00  |  
|Total risk-based        |  |                        | 157,345 |       | 13.53                       |   |        |                                                                              | 93,041 |  | 8.00 |        |  |       | 116,302 |  | 10.00 |  

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, 2008.



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

There
have been no material changes in market risk from the information previously disclosed 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, 2008.



|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 second
quarter of 2009, 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, 2008. There have been no material changes in our Risk Factors from those disclosed in
our Form 10-K.



34



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##### 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 June 30, 2009. 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 2009 |  | 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
|April         |  | 1,307                           |  | $                           | 9.02 |                                                                              |  |                                                                            | 
|May           |  | 219                             |  |                             | 8.04 |                                                                              |  |                                                                            | 
|June          |  |                                |  |                             |     |                                                                              |  |                                                                            | 
|              |  |                                 |  |                             |      |                                                                              |   |                                                                            |  
|Total (1)     |  | 1,526                           |  | $                           | 8.88 |                                                                              |  |                                                                            | 
|              |  |                                 |  |                             |      |                                                                              |   |                                                                            |  



|(1) | The 1,526 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. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On
May 14, 2009, we held our Annual Meeting of Shareholders to consider and act upon the items listed below:



|1. | James S. DAgostino, Jr., G. Walter Christopherson, Charles W. Jenness, J. Bryan King, Walter M. Mischer, Jr., Edwin E. Smith, Eugene H. Vaughan, David E. Warden and Randa
Duncan Williams were elected as directors to serve on our Board of Directors until our 2010 Annual Meeting of Shareholders, and each until their successors are duly elected and qualified, or until their earlier resignation or removal. The table
below contains a summary of shares voted for or withheld with respect to each nominated director:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |           |  |         
|------------------------ |  | --------- |  | --------
|                         |  | For       |  | Withheld
|James S. DAgostino, Jr. |  | 8,476,670 |  | 12,235  
|G. Walter Christopherson |  | 8,444,182 |  | 44,723  
|Charles W. Jenness       |  | 8,440,015 |  | 48,890  
|J. Bryan King            |  | 8,476,342 |  | 12,563  
|Walter M. Mischer, Jr.   |  | 8,148,118 |  | 340,787 
|Edwin E. Smith           |  | 8,413,968 |  | 74,937  
|Eugene H. Vaughan        |  | 8,443,211 |  | 45,694  
|David E. Warden          |  | 8,480,525 |  | 8,380   
|Randa Duncan Williams    |  | 8,437,082 |  | 51,823  



|2. | The shareholders ratified the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2009. A total of 8,478,750
shares were voted in favor of the appointment and 10,155 shares were voted against the appointment.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The shareholders approved the advisory (non-binding) resolution approving the compensation of our named executive officers. A total of 8,417,966 shares were voted in favor of the
resolution, 47,281 were voted against the resolution and 23,654 shares abstained from voting.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|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).                                 
|       | 
|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
|-- | -------------------------------------------------



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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)                                                                      
|               | 
|August 6, 2009 |  | /s/ James S. DAgostino, Jr.                                                      
|(Date)         |  | James S. DAgostino, Jr., Chief Executive Officer                                 
|               | 
|August 6, 2009 |  | /s/ L. Anderson Creel                                                             
|(Date)         |  | L. Anderson Creel, Chief Financial Officer, Executive Vice President and Treasurer



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