##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended March 31, 2011.
|- | -----------------------------------------------------------------------------------------------------------------------------



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

Commission file number: 001-33598





Encore
Bancshares, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Texas                                                          |  | 76-0655696                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|Nine Greenway Plaza, Suite 1000, Houston, Texas                |  | 77046                            
|(Address of principal executive offices)                       |  | (Zip Code)                       

(713) 787-3100

(Registrants telephone number, including area code)





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

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

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



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

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

As of
April 30, 2011, there were 11.5 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                                                                                                |  |      |    | 
|           |  |                       |    | Condensed Consolidated Balance Sheets  March 31, 2011 and December 31, 2010
(unaudited)                            |  |      | 3  | 
|           |  |                       |   
|           |  |                       |    | Condensed Consolidated Statements of Operations  Three months ended March 31, 2011 and 2010 (unaudited)            |  |      | 4  | 
|           |  |                       |   
|           |  |                       |    | Condensed Consolidated Statement of Changes in Shareholders Equity  Three months ended March 31,
2011 (unaudited) |  |      | 5  | 
|           |  |                       |   
|           |  |                       |    | Condensed Consolidated Statements of Cash Flows  Three months ended March 31, 2011 and 2010 (unaudited)            |  |      | 6  | 
|           |  |                       |   
|           |  |                       |    | Notes to Condensed 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.               |    | Removed and Reserved                                                                                                |  |      | 35 | 
|           |  |                       |   
|           |  | Item 5.               |    | Other Information                                                                                                   |  |      | 35 | 
|           |  |                       |   
|           |  | Item 6.               |    | Exhibits                                                                                                            |  |      | 35 | 
|           | 
|Signatures |  |                       | 37 |                                                                                                                    



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##### Table of Contents

Part I  Financial Information

Item 1. Financial Statements

Encore Bancshares, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

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



|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                               |  | March 31,2011 |           |   | December 31,2010 |  
|ASSETS                                                                                                                                                         |  |               |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                        |  | $             | 18,477    |   |                  | $ | 13,523    |  
|Interest-bearing deposits in banks                                                                                                                             |  |               | 49,109    |   |                  |   | 49,478    |  
|Federal funds sold and other temporary investments                                                                                                             |  |               | 856       |   |                  |   | 1,098     |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                      |  |               | 68,442    |   |                  |   | 64,099    |  
|Securities available-for-sale, at estimated fair value                                                                                                         |  |               | 241,370   |   |                  |   | 251,784   |  
|Securities held-to-maturity, at amortized cost                                                                                                                 |  |               | 101,235   |   |                  |   | 107,618   |  
|Loans held-for-sale, at lower of cost or fair value                                                                                                            |  |               | 2,913     |   |                  |   | 10,915    |  
|                                                                                                                                                               |  |              
|Loans receivable                                                                                                                                               |  |               | 936,036   |   |                  |   | 920,457   |  
|Allowance for loan losses                                                                                                                                      |  |               | (19,008   | ) |                  |   | (18,639   | )
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Net loans receivable                                                                                                                                           |  |               | 917,028   |   |                  |   | 901,818   |  
|Federal Home Loan Bank of Dallas stock, at cost                                                                                                                |  |               | 10,206    |   |                  |   | 9,610     |  
|Investment in real estate                                                                                                                                      |  |               | 7,311     |   |                  |   | 9,298     |  
|Premises and equipment, net                                                                                                                                    |  |               | 6,757     |   |                  |   | 7,023     |  
|Cash surrender value of life insurance policies                                                                                                                |  |               | 16,078    |   |                  |   | 15,935    |  
|Goodwill                                                                                                                                                       |  |               | 35,799    |   |                  |   | 35,799    |  
|Other intangible assets, net                                                                                                                                   |  |               | 4,575     |   |                  |   | 4,716     |  
|Accrued interest receivable and other assets                                                                                                                   |  |               | 46,467    |   |                  |   | 47,882    |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                               |  | $             | 1,458,181 |   |                  | $ | 1,466,497 |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                               |  |              
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                           |  |               |           |   |                  |   |           |  
|Deposits:                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                            |  | $             | 219,629   |   |                  | $ | 219,756   |  
|Interest-bearing                                                                                                                                               |  |               | 821,163   |   |                  |   | 830,688   |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total deposits                                                                                                                                                 |  |               | 1,040,792 |   |                  |   | 1,050,444 |  
|Borrowings and repurchase agreements                                                                                                                           |  |               | 221,582   |   |                  |   | 219,777   |  
|Junior subordinated debentures                                                                                                                                 |  |               | 20,619    |   |                  |   | 20,619    |  
|Accrued interest payable and other liabilities                                                                                                                 |  |               | 7,274     |   |                  |   | 9,016     |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                              |  |               | 1,290,267 |   |                  |   | 1,299,856 |  
|Commitments and contingencies                                                                                                                                  |  |               |           |   |                  |   |           |  
|Shareholders equity:                                                                                                                                          |  |               |           |   |                  |   |           |  
|Preferred stock, $1 par value, 20,000 shares authorized; 34 shares issued at March 31, 2011 and December 31, 2010;
aggregate liquidation preference of $34,222 |  |               | 29,633    |   |                  |   | 29,500    |  
|Common stock, $1 par value, 50,000 shares authorized; 11,603 shares at March 31, 2011 and 11,479 shares at December 31,
2010 issued                            |  |               | 11,603    |   |                  |   | 11,479    |  
|Additional paid-in capital                                                                                                                                     |  |               | 123,329   |   |                  |   | 122,678   |  
|Retained earnings                                                                                                                                              |  |               | 5,235     |   |                  |   | 4,641     |  
|Common stock in treasury, at cost (51 shares at March 31, 2011 and 48 shares at December 31, 2010)                                                             |  |               | (497      | ) |                  |   | (455      | )
|Accumulated other comprehensive loss                                                                                                                           |  |               | (1,389    | ) |                  |   | (1,202    | )
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                     |  |               | 167,914   |   |                  |   | 166,641   |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                               |  | $             | 1,458,181 |   |                  | $ | 1,466,497 |  
|                                                                                                                                                               |  |               |           |   |                  |   |           |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Encore Bancshares, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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



|                                                         |  |                             |        |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | Three MonthsEnded March 31, |       
|                                                         |  | 2011                        |        |   | 2010 |  
|Interest income:                                         |  |                             |        |   |      |   |        |  
|Loans, including fees                                    |  | $                           | 13,442 |   |      | $ | 15,694 |  
|Securities                                               |  |                             | 2,305  |   |      |   | 2,046  |  
|Federal funds sold and other temporary investments       |  |                             | 92     |   |      |   | 215    |  
|                                                         |  |                             |        |   |      |   |        |  
|Total interest income                                    |  |                             | 15,839 |   |      |   | 17,955 |  
|Interest expense:                                        |  |                             |        |   |      |   |        |  
|Deposits                                                 |  |                             | 2,340  |   |      |   | 4,052  |  
|Borrowings and repurchase agreements                     |  |                             | 2,106  |   |      |   | 2,116  |  
|Junior subordinated debentures                           |  |                             | 298    |   |      |   | 297    |  
|                                                         |  |                             |        |   |      |   |        |  
|Total interest expense                                   |  |                             | 4,744  |   |      |   | 6,465  |  
|                                                         |  |                             |        |   |      |   |        |  
|Net interest income                                      |  |                             | 11,095 |   |      |   | 11,490 |  
|Provision for loan losses                                |  |                             | 2,170  |   |      |   | 4,960  |  
|                                                         |  |                             |        |   |      |   |        |  
|Net interest income after provision for loan losses      |  |                             | 8,925  |   |      |   | 6,530  |  
|Noninterest income:                                      |  |                             |        |   |      |   |        |  
|Trust and investment management fees                     |  |                             | 5,072  |   |      |   | 4,618  |  
|Mortgage banking                                         |  |                             | 140    |   |      |   | 36     |  
|Insurance commissions and fees                           |  |                             | 1,440  |   |      |   | 1,639  |  
|Net gain (loss) on sale of available-for-sale securities |  |                             | (31    | ) |      |   | 99     |  
|Other                                                    |  |                             | 445    |   |      |   | 517    |  
|                                                         |  |                             |        |   |      |   |        |  
|Total noninterest income                                 |  |                             | 7,066  |   |      |   | 6,909  |  
|Noninterest expense:                                     |  |                             |        |   |      |   |        |  
|Compensation                                             |  |                             | 8,706  |   |      |   | 8,551  |  
|Occupancy                                                |  |                             | 1,287  |   |      |   | 1,478  |  
|Equipment                                                |  |                             | 241    |   |      |   | 363    |  
|Advertising and promotion                                |  |                             | 156    |   |      |   | 181    |  
|Outside data processing                                  |  |                             | 783    |   |      |   | 870    |  
|Professional fees                                        |  |                             | 1,134  |   |      |   | 921    |  
|Intangible amortization                                  |  |                             | 140    |   |      |   | 158    |  
|FDIC assessment                                          |  |                             | 798    |   |      |   | 655    |  
|Foreclosed real estate expenses, net                     |  |                             | 83     |   |      |   | 1,124  |  
|Write down of assets held-for-sale                       |  |                             | 21     |   |      |   | 2,535  |  
|Other                                                    |  |                             | 1,006  |   |      |   | 1,428  |  
|                                                         |  |                             |        |   |      |   |        |  
|Total noninterest expense                                |  |                             | 14,355 |   |      |   | 18,264 |  
|                                                         |  |                             |        |   |      |   |        |  
|Net earnings (loss) before income taxes                  |  |                             | 1,636  |   |      |   | (4,825 | )
|Income tax expense (benefit)                             |  |                             | 484    |   |      |   | (2,574 | )
|                                                         |  |                             |        |   |      |   |        |  
|Net earnings (loss)                                      |  | $                           | 1,152  |   |      | $ | (2,251 | )
|                                                         |  |                             |        |   |      |   |        |  
|Earnings (loss) available to common shareholders         |  | $                           | 594    |   |      | $ | (2,807 | )
|                                                         |  |                             |        |   |      |   |        |  
|Earnings (loss) per common share:                        |  |                             |        |   |      |   |        |  
|Basic                                                    |  | $                           | 0.05   |   |      | $ | (0.27  | )
|Diluted                                                  |  |                             | 0.05   |   |      |   | (0.27  | )
|Average common shares outstanding                        |  |                             | 11,491 |   |      |   | 10,558 |  
|Diluted average common shares outstanding                |  |                             | 11,575 |   |      |   | 10,558 |  

The accompanying notes are an
integral part of these condensed consolidated financial statements.



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Encore Bancshares, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

Three Months Ended March 31, 2011

(Unaudited, amounts in thousands)



|                                                                                                                                   |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | ------------ | ------ | ------ | ------------------------ |  | - | ---------------- | - |  | ---------------------- | ------- |  | ------------------------------------------ | - | ----- | ------------------------ |  | - | ---- | - |  | - | ------ | - |  | - | ------- | -
|                                                                                                                                   |  | PreferredStock |        |  | Common Stock |        |        | AdditionalPaid-inCapital |  |   | RetainedEarnings |   |  | CommonStock inTreasury |         |  | AccumulatedOtherComprehensiveIncome (Loss) |   |       | TotalShareholdersEquity | 
|                                                                                                                                   |  |                | Shares |  |              | Amount |        |                          |  |   |                  |  
|Balance at January 1, 2011                                                                                                         |  | $              | 29,500 |  |              |        | 11,479 |                          |  | $ | 11,479           |   |  | $                      | 122,678 |  |                                            | $ | 4,641 |                          |  | $ | (455 | ) |  | $ | (1,202 | ) |  | $ | 166,641 |  
|Stock-based compensation cost recognized in earnings                                                                               |  |                |       |  |              |        |       |                          |  |   |                 |   |  |                        | 306     |  |                                            |   |      |                          |  |   |     |   |  |   |       |   |  |   | 306     |  
|Issuance of common stock                                                                                                           |  |                |       |  |              |        | 126    |                          |  |   | 126              |   |  |                        | 323     |  |                                            |   |      |                          |  |   |     |   |  |   |       |   |  |   | 449     |  
|Forfeiture of restricted stock                                                                                                     |  |                |       |  |              |        | (2     | )                        |  |   | (2               | ) |  |                        | 2       |  |                                            |   |      |                          |  |   |     |   |  |   |       |   |  |   |        |  
|Purchase of treasury stock (3 shares)                                                                                              |  |                |       |  |              |        |       |                          |  |   |                 |   |  |                        |        |  |                                            |   |      |                          |  |   | (42  | ) |  |   |       |   |  |   | (42     | )
|Excess tax benefit from stock-based compensation                                                                                   |  |                |       |  |              |        |       |                          |  |   |                 |   |  |                        | 20      |  |                                            |   |      |                          |  |   |     |   |  |   |       |   |  |   | 20      |  
|Comprehensive income (loss):                                                                                                       |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   |         |  
|Net earnings                                                                                                                       |  |                |       |  |              |        |       |                          |  |   |                 |   |  |                        |        |  |                                            |   | 1,152 |                          |  |   |     |   |  |   |       |   |  |   | 1,152   |  
|Change in net unrealized loss on securities available-for-sale, net of deferred tax benefit of $74 and reclassification
adjustment |  |                |       |  |              |        |       |                          |  |   |                 |   |  |                        |        |  |                                            |   |      |                          |  |   |     |   |  |   | (187   | ) |  |   | (187    | )
|                                                                                                                                   |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                                                         |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   | 965     |  
|Dividend on preferred stock and amortization of preferred stock discount                                                           |  |                | 133    |  |              |        |       |                          |  |   |                 |   |  |                        |        |  |                                            |   | (558  | )                        |  |   |     |   |  |   |       |   |  |   | (425    | )
|                                                                                                                                   |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   |         |  
|Balance at March 31, 2011                                                                                                          |  | $              | 29,633 |  |              |        | 11,603 |                          |  | $ | 11,603           |   |  | $                      | 123,329 |  |                                            | $ | 5,235 |                          |  | $ | (497 | ) |  | $ | (1,389 | ) |  | $ | 167,914 |  
|                                                                                                                                   |  |                |        |  |              |        |        |                          |  |   |                  |   |  |                        |         |  |                                            |   |       |                          |  |   |      |   |  |   |        |   |  |   |         |  

The accompanying notes are an integral part of this condensed consolidated financial statement.



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Encore Bancshares, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)



|                                                                                           |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                           |  | Three MonthsEnded March 31, |        
|                                                                                           |  | 2011                        |         |   | 2010 |  
|Cash flows from operating activities:                                                      |  |                             |         |   |      |   |         |  
|Net earnings (loss)                                                                        |  | $                           | 1,152   |   |      | $ | (2,251  | )
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Provision for loan losses                                                                  |  |                             | 2,170   |   |      |   | 4,960   |  
|Write down of assets held-for-sale and investment in real estate                           |  |                             | 34      |   |      |   | 3,254   |  
|Depreciation and amortization, net                                                         |  |                             | 715     |   |      |   | 605     |  
|Stock-based compensation                                                                   |  |                             | 306     |   |      |   | 196     |  
|Loss on sale of available-for-sale securities and other assets, net                        |  |                             | 15      |   |      |   | 218     |  
|Loans originated for sale in the secondary market                                          |  |                             | (5,715  | ) |      |   | (4,417  | )
|Proceeds from sale of mortgage loans                                                       |  |                             | 7,901   |   |      |   | 3,583   |  
|Other, net                                                                                 |  |                             | 2,094   |   |      |   | (2,089  | )
|                                                                                           |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                                  |  |                             | 8,672   |   |      |   | 4,059   |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                                      |  |                             |         |   |      |   |         |  
|Purchases of available-for-sale securities                                                 |  |                             | (14,591 | ) |      |   | (49,549 | )
|Principal collected on available-for-sale securities                                       |  |                             | 9,636   |   |      |   | 2,669   |  
|Proceeds from sales of available-for-sale securities                                       |  |                             | 14,945  |   |      |   | 49,548  |  
|Proceeds from prepayments and maturities of held-to-maturity securities                    |  |                             | 6,379   |   |      |   | 28,921  |  
|Proceeds from sales of foreclosed real estate                                              |  |                             | 1,974   |   |      |   | 3,512   |  
|Cash paid for contingency payment related to prior acquisition                             |  |                             |        |   |      |   | (2,095  | )
|Net (increase) decrease in loans                                                           |  |                             | (14,068 | ) |      |   | 16,718  |  
|Purchase of Federal Home Loan Bank stock                                                   |  |                             | (587    | ) |      |   |        |  
|Purchases of premises and equipment                                                        |  |                             | (34     | ) |      |   | (97     | )
|                                                                                           |  |                             |         |   |      |   |         |  
|Net cash provided by investing activities                                                  |  |                             | 3,654   |   |      |   | 49,627  |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                                      |  |                             |         |   |      |   |         |  
|Net increase (decrease) in deposits                                                        |  |                             | (9,652  | ) |      |   | 9,587   |  
|Proceeds from long term Federal Home Loan Bank of Dallas borrowings                        |  |                             |        |   |      |   | 17,000  |  
|Repayment of long term Federal Home Loan Bank of Dallas borrowings                         |  |                             | (13     | ) |      |   | (17,602 | )
|Increase (decrease) in repurchase agreements                                               |  |                             | 1,680   |   |      |   | (1,450  | )
|Proceeds from issuance of common stock, net of purchase of treasury stock                  |  |                             | 407     |   |      |   | (86     | )
|Preferred dividend paid                                                                    |  |                             | (425    | ) |      |   | (425    | )
|Other, net                                                                                 |  |                             | 20      |   |      |   |        |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Net cash provided (used) by financing activities                                           |  |                             | (7,983  | ) |      |   | 7,024   |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                                  |  |                             | 4,343   |   |      |   | 60,710  |  
|Cash and cash equivalents at beginning of period                                           |  |                             | 64,099  |   |      |   | 197,176 |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                 |  | $                           | 68,442  |   |      | $ | 257,886 |  
|                                                                                           |  |                             |         |   |      |   |         |  
|Supplementary cash flows information:                                                      |  |                             |         |   |      |   |         |  
|Interest paid on deposits and borrowed funds                                               |  | $                           | 4,864   |   |      | $ | 6,546   |  
|Income taxes paid                                                                          |  |                             |        |   |      |   |        |  
|Noncash investing and financing activities:                                                |  |                             |         |   |      |   |         |  
|Real estate acquired in satisfaction of loans                                              |  |                             | 98      |   |      |   | 829     |  
|Issuance of common stock for acquisition                                                   |  |                             |        |   |      |   | 5,831   |  
|Transfer of loans held-for-sale to loans receivable                                        |  |                             | 7,327   |   |      |   |        |  

The accompanying notes are an
integral part of these condensed consolidated financial statements.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Encore Bancshares, Inc. (on a consolidated
basis referred to as we, the Company or our) is a financial holding company that was formed on March 28, 2000 and acquired Guardian Savings and Loan Association effective September 30, 2000, later renamed Encore Bank. Our principal
subsidiary is Encore Bank, National Association (Encore Bank), which operates as a national banking association with its main office in Houston, Texas. We provide trust and investment management services through Linscomb & Williams, Inc.
(Linscomb & Williams), a subsidiary of Encore Bank, and the Trust Division of Encore Bank (Encore Trust). We provide property and casualty insurance products through our subsidiary Town & Country Insurance Agency, Inc.
(Town & Country).

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Encore Bancshares, Inc., Encore Bank, Linscomb & Williams and 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. These
unaudited condensed 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, 2010. The condensed consolidated balance sheet at December 31,
2010 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 condensed consolidated financial statements and in
disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates.

Operating results for
the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any other period.

Nature of Operations

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

We provide a variety of financial services through our eleven private client offices located in the greater Houston area, and five wealth management offices and three insurance offices in Texas. Six
private client offices in Florida were sold in 2010. 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.

Adoption of Updates to the FASB Codification

On January 1, 2011, we adopted the following updates to the FASB Codification:

FASB ASU No. 2010-28,IntangiblesGoodwill and Other (Topic 350)When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts.ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment
test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an
impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010-28 did not have a significant impact on our financial
statements.

FASB ASU No. 2010-29,Business Combinations (Topic 805)Disclosure of Supplementary Pro
Forma Information for Business Combinations.ASU 2010-29 provides clarification regarding the acquisition date that should be used for reporting the pro forma financial information disclosures required by Topic 805 when comparative
financial



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



statements are presented. ASU 2010-29 also requires entities to provide a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable
to the business combination. ASU 2010-29 is effective for us prospectively for business combinations occurring after December 31, 2010.

Pending Accounting Pronouncements

FASB ASU
No. 2011-02,Receivables (Topic 310)A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring.ASU 2011-02 clarifies which loan modifications constitute troubled debt
restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for
disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist:
(a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective for us on July 1, 2011, and applies retrospectively to restructurings occurring on or after
January 1, 2011. We are currently evaluating the impact of ASU 2011-02 on our financial statements.

Descriptions of
our significant accounting policies are included in Note A to our consolidated financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K. There have been no significant changes to these
policies.

Comprehensive Income

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

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



|                                                                                         |  |                              |      |   |      |   |      |  
|---------------------------------------------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                         |  | Three Months Ended March 31, |     
|                                                                                         |  | 2011                         |      |   | 2010 |  
|Unrealized holding gains (losses) on available-for-sale securities arising during period |  | $                            | (230 | ) |      | $ | 448  |  
|Reclassification adjustment for gains (losses) included in income                        |  |                              | (31  | ) |      |   | 99   |  
|                                                                                         |  |                              |      |   |      |   |      |  
|Net pre-tax gain (loss) recognized in other comprehensive income                         |  |                              | (261 | ) |      |   | 547  |  
|Tax (expense) benefit                                                                    |  |                              | 74   |   |      |   | (172 | )
|                                                                                         |  |                              |      |   |      |   |      |  
|Net-of-tax impact on comprehensive income                                                |  | $                            | (187 | ) |      | $ | 375  |  
|                                                                                         |  |                              |      |   |      |   |      |  



8



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



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

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



|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|---------------------------------------------------- |  | ------------- | ------- |  | -------------------- | - | ----- | --------------------- |  | - | --------- | - |  | - | ------- | 
|                                                     |  | AmortizedCost |         |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|March 31, 2011                                       |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Available-for-sale:                                  |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 158,135 |  |                      | $ | 191   |                       |  | $ | (2,554    | ) |  | $ | 155,772 | 
|Securities of U.S. states and political subdivisions |  |               | 7,299   |  |                      |   |      |                       |  |   | (428      | ) |  |   | 6,871   | 
|Mortgage-backed securities                           |  |               | 56,261  |  |                      |   | 880   |                       |  |   | (203      | ) |  |   | 56,938  | 
|Corporate securities                                 |  |               | 13,966  |  |                      |   | 409   |                       |  |   | (572      | ) |  |   | 13,803  | 
|Other securities                                     |  |               | 4,993   |  |                      |   | 6     |                       |  |   | (69       | ) |  |   | 4,930   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total                                                |  |               | 240,654 |  |                      |   | 1,486 |                       |  |   | (3,826    | ) |  |   | 238,314 | 
|Marketable equity securities                         |  |               | 2,791   |  |                      |   | 265   |                       |  |   |          |   |  |   | 3,056   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total available-for-sale securities                  |  | $             | 243,445 |  |                      | $ | 1,751 |                       |  | $ | (3,826    | ) |  | $ | 241,370 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Held-to-maturity:                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 5,000   |  |                      | $ |      |                       |  | $ | (90       | ) |  | $ | 4,910   | 
|Securities of U.S. states and political subdivisions |  |               | 21,982  |  |                      |   | 481   |                       |  |   | (279      | ) |  |   | 22,184  | 
|Mortgage-backed securities                           |  |               | 56,959  |  |                      |   | 696   |                       |  |   | (1,012    | ) |  |   | 56,643  | 
|Corporate securities                                 |  |               | 12,245  |  |                      |   | 1,882 |                       |  |   |          |   |  |   | 14,127  | 
|Other securities                                     |  |               | 5,049   |  |                      |   |      |                       |  |   | (160      | ) |  |   | 4,889   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total held-to-maturity securities                    |  | $             | 101,235 |  |                      | $ | 3,059 |                       |  | $ | (1,541    | ) |  | $ | 102,753 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|                                                     |  |               |         | 
|December 31, 2010                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Available-for-sale:                                  |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 164,226 |  |                      | $ | 231   |                       |  | $ | (1,802    | ) |  | $ | 162,655 | 
|Securities of U.S. states and political subdivisions |  |               | 7,950   |  |                      |   |      |                       |  |   | (572      | ) |  |   | 7,378   | 
|Mortgage-backed securities                           |  |               | 59,377  |  |                      |   | 1,015 |                       |  |   | (248      | ) |  |   | 60,144  | 
|Corporate securities                                 |  |               | 13,966  |  |                      |   |      |                       |  |   | (546      | ) |  |   | 13,420  | 
|Other securities                                     |  |               | 5,529   |  |                      |   | 18    |                       |  |   | (146      | ) |  |   | 5,401   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total                                                |  |               | 251,048 |  |                      |   | 1,264 |                       |  |   | (3,314    | ) |  |   | 248,998 | 
|Marketable equity securities                         |  |               | 2,531   |  |                      |   | 255   |                       |  |   |          |   |  |   | 2,786   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total available-for-sale securities                  |  | $             | 253,579 |  |                      | $ | 1,519 |                       |  | $ | (3,314    | ) |  | $ | 251,784 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Held-to-maturity:                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 5,000   |  |                      |   |      |                       |  |   |          |   |  | $ | 5,000   | 
|Securities of U.S. states and political subdivisions |  |               | 21,992  |  |                      |   | 98    |                       |  |   | (519      | ) |  |   | 21,571  | 
|Mortgage-backed securities                           |  |               | 58,286  |  |                      |   | 706   |                       |  |   | (5        | ) |  |   | 58,987  | 
|Corporate securities                                 |  |               | 17,212  |  |                      |   | 1,840 |                       |  |   |          |   |  |   | 19,052  | 
|Other securities                                     |  |               | 5,128   |  |                      |   |      |                       |  |   |          |   |  |   | 5,128   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total available-for-sale securities                  |  | $             | 107,618 |  |                      | $ | 2,644 |                       |  | $ | (524      | ) |  | $ | 109,738 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 



9



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



We own certain debt securities with unrealized losses as of March 31, 2011 and
December 31, 2010. These securities, with unrealized losses segregated by length of impairment at period end, were as follows:



|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|---------------------------------------------------- |  | ------------------- | -- |  | ---------- | - | ------- | ---------------- |  | - | ------ | -
|Description of Securities                            |  | Number ofSecurities |    |  | Fair Value |   |         | UnrealizedLosses | 
|                                                     |  |                     |   
|March 31, 2011                                       |  |                     |    |  |            |   |         |                  |  |   |        |  
|Less than 12 months                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|Available-for-sale:                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|U.S. Government securities                           |  |                     | 18 |  |            | $ | 87,751  |                  |  | $ | (2,554 | )
|Securities of U.S. states and political subdivisions |  |                     | 8  |  |            |   | 6,871   |                  |  |   | (428   | )
|Mortgage-backed securities                           |  |                     | 6  |  |            |   | 17,877  |                  |  |   | (203   | )
|Corporate securities                                 |  |                     | 3  |  |            |   | 8,419   |                  |  |   | (572   | )
|Other securities                                     |  |                     | 1  |  |            |   | 4,769   |                  |  |   | (69    | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Total available-for-sale securities                  |  |                     | 36 |  |            | $ | 125,687 |                  |  | $ | (3,826 | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Held-to-maturity:                                    |  |                     |    |  |            |   |         |                  |  |   |        |  
|U.S. Government securities                           |  |                     | 1  |  |            | $ | 4,910   |                  |  | $ | (90    | )
|Securities of U.S. states and political subdivisions |  |                     | 9  |  |            |   | 6,781   |                  |  |   | (279   | )
|Mortgage-backed securities                           |  |                     | 9  |  |            |   | 39,216  |                  |  |   | (1,008 | )
|Other securities                                     |  |                     | 1  |  |            |   | 4,889   |                  |  |   | (160   | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Total held-to-maturity securities                    |  |                     | 20 |  |            | $ | 55,796  |                  |  | $ | (1,537 | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|More than 12 months                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|Held-to-maturity:                                    |  |                     |    |  |            |   |         |                  |  |   |        |  
|Mortgage-backed securities                           |  |                     | 3  |  |            | $ | 536     |                  |  | $ | (4     | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|                                                     |  |                     |   
|December 31, 2010                                    |  |                     |    |  |            |   |         |                  |  |   |        |  
|Less than 12 months                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|Available-for-sale:                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|U.S. Government securities                           |  |                     | 9  |  |            | $ | 42,840  |                  |  | $ | (1,802 | )
|Securities of U.S. states and political subdivisions |  |                     | 9  |  |            |   | 7,378   |                  |  |   | (572   | )
|Mortgage-backed securities                           |  |                     | 5  |  |            |   | 13,517  |                  |  |   | (248   | )
|Corporate securities                                 |  |                     | 4  |  |            |   | 13,420  |                  |  |   | (546   | )
|Other securities                                     |  |                     | 1  |  |            |   | 4,818   |                  |  |   | (146   | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Total available-for-sale securities                  |  |                     | 28 |  |            | $ | 81,973  |                  |  | $ | (3,314 | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Held-to-maturity:                                    |  |                     |    |  |            |   |         |                  |  |   |        |  
|Securities of U.S. states and political subdivisions |  |                     | 14 |  |            | $ | 8,898   |                  |  | $ | (519   | )
|Mortgage-backed securities                           |  |                     | 1  |  |            |   | 279     |                  |  |   | (1     | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|Total held-to-maturity securities                    |  |                     | 15 |  |            | $ | 9,177   |                  |  | $ | (520   | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  
|More than 12 months                                  |  |                     |    |  |            |   |         |                  |  |   |        |  
|Held-to-maturity:                                    |  |                     |    |  |            |   |         |                  |  |   |        |  
|Mortgage-backed securities                           |  |                     | 3  |  |            | $ | 540     |                  |  | $ | (4     | )
|                                                     |  |                     |    |  |            |   |         |                  |  |   |        |  

We do not believe any of the above securities are impaired due to credit quality. These securities have
unrealized losses primarily due to changes in market interest rates. We expect to recover the entire amortized cost of these securities since we do not intend to sell the securities. Additionally, it is not more likely than not that we will be
required to sell these securities before recovery of our cost basis. Accordingly, as of March 31, 2011 and December 31, 2010, we believe the impairments detailed in the table are temporary and no impairment loss has been recorded in the
accompanying condensed consolidated statements of operations.



10



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



The following table shows the amortized cost and estimated fair value of securities by
contractual maturity at March 31, 2011. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment schedules. Mortgage-backed securities and
equity securities are shown separately since they are not due at a single maturity date.



|                                                 |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |         | 
|------------------------------------------------ |  | ---------------------------- | ------- |  | -------------------------- | - | ------- | ------------- |  | - | --------- |  |  | - | ------- | 
|                                                 |  | Available-for-SaleSecurities |         |  | Held-to-MaturitySecurities |  
|                                                 |  | AmortizedCost                |         |  | FairValue                  |   |         | AmortizedCost |  |   | FairValue | 
|Within one year                                  |  | $                            | 25,074  |  |                            | $ | 25,138  |               |  | $ |          |  |  | $ |        | 
|Over one year through five years                 |  |                              | 80,588  |  |                            |   | 80,602  |               |  |   | 7,592     |  |  |   | 8,662   | 
|After five years through ten years               |  |                              | 63,835  |  |                            |   | 61,152  |               |  |   | 4,653     |  |  |   | 5,464   | 
|Over ten years                                   |  |                              | 14,896  |  |                            |   | 14,484  |               |  |   | 32,031    |  |  |   | 31,984  | 
|                                                 |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |         | 
|Total                                            |  |                              | 184,393 |  |                            |   | 181,376 |               |  |   | 44,276    |  |  |   | 46,110  | 
|Mortgage-backed and marketable equity securities |  |                              | 59,052  |  |                            |   | 59,994  |               |  |   | 56,959    |  |  |   | 56,643  | 
|                                                 |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |         | 
|Total securities                                 |  | $                            | 243,445 |  |                            | $ | 241,370 |               |  | $ | 101,235   |  |  | $ | 102,753 | 
|                                                 |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |         | 

Mortgage-backed securities consist of federal agency pass-through securities and have a weighted average
yield of 2.67% and 2.85% at March 31, 2011 and December 31, 2010. As of March 31, 2011, the mortgage-backed securities have contractual maturities from 2018 to 2040. Accrued interest receivable on mortgage-backed securities was $312
and $328 at March 31, 2011 and December 31, 2010.

At March 31, 2011 and December 31, 2010, securities
with a carrying value of $73,732 and $76,865 were pledged as collateral for repurchase agreements, public funds, trust deposits, and for other purposes, as required or permitted by law.

Gross realized gains were $26 and $154 and gross realized losses were $57 and $55 on sales of available-for-sale securities for the three
months ended March 31, 2011 and 2010.

NOTE C  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following:



|                                    |  |               |         |  |                  |   |         | 
|----------------------------------- |  | ------------- | ------- |  | ---------------- | - | ------- | 
|                                    |  | March 31,2011 |         |  | December 31,2010 |  
|Commercial:                         |  |               |         |  |                  |   |         | 
|Commercial                          |  | $             | 164,053 |  |                  | $ | 147,090 | 
|Commercial real estate              |  |               | 168,893 |  |                  |   | 166,043 | 
|Real estate construction            |  |               | 52,106  |  |                  |   | 46,326  | 
|                                    |  |               |         |  |                  |   |         | 
|Total commercial                    |  |               | 385,052 |  |                  |   | 359,459 | 
|                                    |  |              
|Consumer:                           |  |               |         |  |                  |   |         | 
|Residential real estate first lien  |  |               | 205,012 |  |                  |   | 205,531 | 
|Residential real estate second lien |  |               | 263,286 |  |                  |   | 269,727 | 
|Home equity lines                   |  |               | 59,832  |  |                  |   | 60,609  | 
|Consumer other                      |  |               | 22,854  |  |                  |   | 25,131  | 
|                                    |  |               |         |  |                  |   |         | 
|Total consumer                      |  |               | 550,984 |  |                  |   | 560,998 | 
|                                    |  |               |         |  |                  |   |         | 
|Loans receivable                    |  |               | 936,036 |  |                  |   | 920,457 | 
|Loans held-for-sale                 |  |               | 2,913   |  |                  |   | 10,915  | 
|                                    |  |               |         |  |                  |   |         | 
|Total loans                         |  | $             | 938,949 |  |                  | $ | 931,372 | 
|                                    |  |               |         |  |                  |   |         | 



11



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



Included in loans receivable is $2,346 and $2,484 of net deferred loan origination costs
and unamortized premium and discount at March 31, 2011 and December 31, 2010. Accrued interest receivable on loans was $3,380 and $3,319 at March 31, 2011 and December 31, 2010. Consumer other loans include client overdrafts of
$233 and $293 as of March 31, 2011 and December 31, 2010.

In the first quarter of 2011, $7,327 of loans
held-for-sale were transferred to loans receivable at fair value because we do not have plans to sell these loans. Of this amount, $2,802 was impaired as of March 31, 2011.

The allowance for loan losses and recorded investment in loans by loan type is as follows:



|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------------- |  | ---------- | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | -------------------------------- | - |  | --------------------------------- | ------- | - | ---------------- | - | ------- | ------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                     |  | Commercial |         |   | CommercialReal Estate |   |         | Real EstateConstruction |  |   | ResidentialReal EstateFirst Lien |   |  | ResidentialReal EstateSecond Lien |         |   | HomeEquity Lines |   |         | ConsumerOther |  |   | Total  |  
|Three Months Ended March 31, 2011                    |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Allowance for Loan Losses:                           |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Beginning balance                                    |  | $          | 4,150   |   |                       | $ | 2,808   |                         |  | $ | 1,486                            |   |  | $                                 | 3,355   |   |                  | $ | 4,713   |               |  | $ | 1,835  |   |  | $ | 292    |   |  | $ | 18,639  |  
|Charge-offs                                          |  |            | (196    | ) |                       |   | (465    | )                       |  |   | (4                               | ) |  |                                   | (222    | ) |                  |   | (1,059  | )             |  |   | (296   | ) |  |   | (36    | ) |  |   | (2,278  | )
|Recoveries                                           |  |            | 3       |   |                       |   | 12      |                         |  |   | 131                              |   |  |                                   | 223     |   |                  |   | 71      |               |  |   | 19     |   |  |   | 18     |   |  |   | 477     |  
|Provision                                            |  |            | 404     |   |                       |   | 519     |                         |  |   | 140                              |   |  |                                   | 79      |   |                  |   | 676     |               |  |   | 370    |   |  |   | (18    | ) |  |   | 2,170   |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance                                       |  | $          | 4,361   |   |                       | $ | 2,874   |                         |  | $ | 1,753                            |   |  | $                                 | 3,435   |   |                  | $ | 4,401   |               |  | $ | 1,928  |   |  | $ | 256    |   |  | $ | 19,008  |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance individually evaluated for impairment |  | $          | 110     |   |                       | $ |        |                         |  | $ | 43                               |   |  | $                                 |        |   |                  | $ |        |               |  | $ |       |   |  | $ |       |   |  | $ | 153     |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Loans (1):                                           |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance                                       |  | $          | 164,053 |   |                       | $ | 168,893 |                         |  | $ | 52,106                           |   |  | $                                 | 205,012 |   |                  | $ | 263,286 |               |  | $ | 59,832 |   |  | $ | 22,854 |   |  | $ | 936,036 |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance individually evaluated for impairment |  | $          | 2,097   |   |                       | $ | 10,282  |                         |  | $ | 3,294                            |   |  | $                                 | 6,477   |   |                  | $ |        |               |  | $ |       |   |  | $ |       |   |  | $ | 22,150  |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance collectively evaluated for impairment |  | $          | 161,956 |   |                       | $ | 158,611 |                         |  | $ | 48,812                           |   |  | $                                 | 198,535 |   |                  | $ | 263,286 |               |  | $ | 59,832 |   |  | $ | 22,854 |   |  | $ | 913,886 |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|                                                     |  |            |         |   |                       |   |         |                        
|Year Ended December 31, 2010                         |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Allowance for Loan Losses:                           |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Beginning balance                                    |  | $          | 4,514   |   |                       | $ | 10,580  |                         |  | $ | 2,777                            |   |  | $                                 | 3,061   |   |                  | $ | 3,673   |               |  | $ | 1,577  |   |  | $ | 319    |   |  | $ | 26,501  |  
|Charge-offs                                          |  |            | (965    | ) |                       |   | (24,527 | )                       |  |   | (9,159                           | ) |  |                                   | (4,089  | ) |                  |   | (3,720  | )             |  |   | (2,030 | ) |  |   | (414   | ) |  |   | (44,904 | )
|Recoveries                                           |  |            | 883     |   |                       |   | 17      |                         |  |   | 104                              |   |  |                                   | 304     |   |                  |   | 226     |               |  |   | 180    |   |  |   | 159    |   |  |   | 1,873   |  
|Provision                                            |  |            | (282    | ) |                       |   | 16,738  |                         |  |   | 7,764                            |   |  |                                   | 4,079   |   |                  |   | 4,534   |               |  |   | 2,108  |   |  |   | 228    |   |  |   | 35,169  |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance                                       |  | $          | 4,150   |   |                       | $ | 2,808   |                         |  | $ | 1,486                            |   |  | $                                 | 3,355   |   |                  | $ | 4,713   |               |  | $ | 1,835  |   |  | $ | 292    |   |  | $ | 18,639  |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance individually evaluated for impairment |  | $          | 189     |   |                       | $ |        |                         |  | $ |                                 |   |  | $                                 | 2       |   |                  | $ | 372     |               |  | $ |       |   |  | $ |       |   |  | $ | 563     |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Loans (1):                                           |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance                                       |  | $          | 147,090 |   |                       | $ | 166,043 |                         |  | $ | 46,326                           |   |  | $                                 | 205,531 |   |                  | $ | 269,727 |               |  | $ | 60,609 |   |  | $ | 25,131 |   |  | $ | 920,457 |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance individually evaluated for impairment |  | $          | 740     |   |                       | $ | 4,154   |                         |  | $ | 3,411                            |   |  | $                                 | 6,500   |   |                  | $ | 372     |               |  | $ |       |   |  | $ |       |   |  | $ | 15,177  |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Ending balance collectively evaluated for impairment |  | $          | 146,350 |   |                       | $ | 161,889 |                         |  | $ | 42,915                           |   |  | $                                 | 199,031 |   |                  | $ | 269,355 |               |  | $ | 60,609 |   |  | $ | 25,131 |   |  | $ | 905,280 |  
|                                                     |  |            |         |   |                       |   |         |                         |  |   |                                  |   |  |                                   |         |   |                  |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  



|(1) | Excludes loans held-for-sale.
|--- | -----------------------------



12



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



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



|                                                           |  |               |        |  |                  |   |        | 
|---------------------------------------------------------- |  | ------------- | ------ |  | ---------------- | - | ------ | 
|                                                           |  | March 31,2011 |        |  | December 31,2010 |  
|Impaired loans on nonaccrual without a valuation allowance |  | $             | 17,605 |  |                  | $ | 14,109 | 
|Impaired loans on nonaccrual with a valuation allowance    |  |               | 4,545  |  |                  |   | 561    | 
|Impaired loans still accruing with a valuation allowance   |  |               |       |  |                  |   | 507    | 
|                                                           |  |               |        |  |                  |   |        | 
|Total impaired loans (1)                                   |  | $             | 22,150 |  |                  | $ | 15,177 | 
|                                                           |  |               |        |  |                  |   |        | 
|Valuation allowance related to impaired loans              |  | $             | 153    |  |                  | $ | 563    | 
|                                                           |  |               |        |  |                  |   |        | 
|Total nonaccrual loans                                     |  | $             | 27,726 |  |                  | $ | 26,477 | 
|                                                           |  |               |        |  |                  |   |        | 
|Total accruing loans past due 90 days or more              |  | $             |       |  |                  | $ | 313    | 
|                                                           |  |               |        |  |                  |   |        | 
|Restructured loans still accruing                          |  | $             | 1,755  |  |                  | $ | 804    | 
|                                                           |  |               |        |  |                  |   |        | 



|(1) | Does not include loans in the total of nonaccrual loans which are not evaluated separately for impairment and loans held-for-sale.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

We consider a loan to be impaired under the accounting guidance for loan impairment provisions when, based on current information and
events, we determine that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. We individually assess and evaluate for impairment certain nonaccrual commercial loans over $100 and
commercial loans collateralized by real estate over $250 as well as certain consumer loans collateralized by real estate. The impairment measurement is based primarily on the collateral value method.

The average investment in impaired loans was $22,113 for the three months ended March 31, 2011 and $18,179 for the year ended
December 31, 2010. Interest income recognized after a loan is impaired is not material. No additional funds are committed to be advanced in connection with impaired loans.

The age analysis of past due loans is as follows:



|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|----------------------------------- |  | ------------------ | ----- |  | ------------------ | - | ----- | --------------------------- |  | - | ------------- |  |  | ------- | ------ |  | -------------- | - | ------- | ------------------------------------------------- |  | - | ------- |  |  | - | - | 
|                                    |  | 30-59 DaysPast Due |       |  | 60-89 DaysPast Due |   |       | Greater Than90 Days PastDue |  |   | Total PastDue |  |  | Current |        |  | TotalLoans (1) |   |         | RecordedInvestmentGreater Than90 Days andAccruing | 
|March 31, 2011                      |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|Commercial                          |  | $                  | 274   |  |                    | $ |      |                             |  | $ | 108           |  |  | $       | 382    |  |                | $ | 163,671 |                                                   |  | $ | 164,053 |  |  | $ |  | 
|Commercial real estate              |  |                    | 88    |  |                    |   | 1,627 |                             |  |   | 3,958         |  |  |         | 5,673  |  |                |   | 163,220 |                                                   |  |   | 168,893 |  |  |   |  | 
|Real estate construction            |  |                    | 2,104 |  |                    |   |      |                             |  |   | 101           |  |  |         | 2,205  |  |                |   | 49,901  |                                                   |  |   | 52,106  |  |  |   |  | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|Total commercial                    |  |                    | 2,466 |  |                    |   | 1,627 |                             |  |   | 4,167         |  |  |         | 8,260  |  |                |   | 376,792 |                                                   |  |   | 385,052 |  |  |   |  | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|Residential real estate first lien  |  |                    | 600   |  |                    |   | 228   |                             |  |   | 9,128         |  |  |         | 9,956  |  |                |   | 195,056 |                                                   |  |   | 205,012 |  |  |   |  | 
|Residential real estate second lien |  |                    | 373   |  |                    |   | 332   |                             |  |   | 302           |  |  |         | 1,007  |  |                |   | 262,279 |                                                   |  |   | 263,286 |  |  |   |  | 
|Home equity lines                   |  |                    | 217   |  |                    |   |      |                             |  |   |              |  |  |         | 217    |  |                |   | 59,615  |                                                   |  |   | 59,832  |  |  |   |  | 
|Consumer other                      |  |                    | 297   |  |                    |   | 36    |                             |  |   | 2             |  |  |         | 335    |  |                |   | 22,519  |                                                   |  |   | 22,854  |  |  |   |  | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|Total consumer                      |  |                    | 1,487 |  |                    |   | 596   |                             |  |   | 9,432         |  |  |         | 11,515 |  |                |   | 539,469 |                                                   |  |   | 550,984 |  |  |   |  | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 
|Total                               |  | $                  | 3,953 |  |                    | $ | 2,223 |                             |  | $ | 13,599        |  |  | $       | 19,775 |  |                | $ | 916,261 |                                                   |  | $ | 936,036 |  |  | $ |  | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |   | 



13



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|----------------------------------- |  | ------------------ | ----- |  | ------------------ | - | ----- | --------------------------- |  | - | ------------- |  |  | ------- | ------ |  | -------------- | - | ------- | ------------------------------------------------- |  | - | ------- |  |  | - | --- | 
|                                    |  | 30-59 DaysPast Due |       |  | 60-89 DaysPast Due |   |       | Greater Than90 Days PastDue |  |   | Total PastDue |  |  | Current |        |  | TotalLoans (1) |   |         | RecordedInvestmentGreater Than90 Days andAccruing | 
|December 31, 2010                   |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|Commercial                          |  | $                  | 196   |  |                    | $ | 338   |                             |  | $ | 313           |  |  | $       | 847    |  |                | $ | 146,243 |                                                   |  | $ | 147,090 |  |  | $ | 313 | 
|Commercial real estate              |  |                    | 239   |  |                    |   | 1,417 |                             |  |   | 1,858         |  |  |         | 3,514  |  |                |   | 162,529 |                                                   |  |   | 166,043 |  |  |   |    | 
|Real estate construction            |  |                    |      |  |                    |   |      |                             |  |   | 530           |  |  |         | 530    |  |                |   | 45,796  |                                                   |  |   | 46,326  |  |  |   |    | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|Total commercial                    |  |                    | 435   |  |                    |   | 1,755 |                             |  |   | 2,701         |  |  |         | 4,891  |  |                |   | 354,568 |                                                   |  |   | 359,459 |  |  |   | 313 | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|Residential real estate first lien  |  |                    | 546   |  |                    |   | 347   |                             |  |   | 9,759         |  |  |         | 10,652 |  |                |   | 194,879 |                                                   |  |   | 205,531 |  |  |   |    | 
|Residential real estate second lien |  |                    | 671   |  |                    |   | 192   |                             |  |   | 675           |  |  |         | 1,538  |  |                |   | 268,189 |                                                   |  |   | 269,727 |  |  |   |    | 
|Home equity lines                   |  |                    | 306   |  |                    |   | 149   |                             |  |   |              |  |  |         | 455    |  |                |   | 60,154  |                                                   |  |   | 60,609  |  |  |   |    | 
|Consumer other                      |  |                    | 742   |  |                    |   | 45    |                             |  |   |              |  |  |         | 787    |  |                |   | 24,344  |                                                   |  |   | 25,131  |  |  |   |    | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|Total consumer                      |  |                    | 2,265 |  |                    |   | 733   |                             |  |   | 10,434        |  |  |         | 13,432 |  |                |   | 547,566 |                                                   |  |   | 560,998 |  |  |   |    | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 
|Total                               |  | $                  | 2,700 |  |                    | $ | 2,488 |                             |  | $ | 13,135        |  |  | $       | 18,323 |  |                | $ | 902,134 |                                                   |  | $ | 920,457 |  |  | $ | 313 | 
|                                    |  |                    |       |  |                    |   |       |                             |  |   |               |  |  |         |        |  |                |   |         |                                                   |  |   |         |  |  |   |     | 



|(1) | Excludes loans held-for-sale.
|--- | -----------------------------

Impaired loans are as follows:



|                                    |  |                    |        |  |                        |   |        |                  |  |   |                    |  |  |                        |       |  |                  |   |        |  |  |   |     | 
|----------------------------------- |  | ------------------ | ------ |  | ---------------------- | - | ------ | ---------------- |  | - | ------------------ |  |  | ---------------------- | ----- |  | ---------------- | - | ------ |  |  | - | --- | 
|                                    |  | March 31, 2011     |        |  | December 31, 2010      |  
|                                    |  | RecordedInvestment |        |  | UnpaidPrincipalBalance |   |        | RelatedAllowance |  |   | RecordedInvestment |  |  | UnpaidPrincipalBalance |       |  | RelatedAllowance |  
|With no related allowance recorded: |  |                    |        |  |                        |   |        |                  |  |   |                    |  |  |                        |       |  |                  |   |        |  |  |   |     | 
|Commercial                          |  | $                  | 530    |  |                        | $ | 558    |                  |  | $ |                   |  |  | $                      | 551   |  |                  | $ | 574    |  |  | $ |    | 
|Commercial real estate              |  |                    | 10,282 |  |                        |   | 16,205 |                  |  |   |                   |  |  |                        | 4,154 |  |                  |   | 5,321  |  |  |   |    | 
|Real estate construction            |  |                    | 316    |  |                        |   | 1,325  |                  |  |   |                   |  |  |                        | 3,411 |  |                  |   | 6,024  |  |  |   |    | 
|Residential real estate first lien  |  |                    | 6,477  |  |                        |   | 7,889  |                  |  |   |                   |  |  |                        | 5,993 |  |                  |   | 7,393  |  |  |   |    | 
|With an allowance recorded:         |  |                    |        |  |                        |   |        |                  |  |   |                    |  |  |                        |       |  |                  |   |        |  |  |   |     | 
|Commercial                          |  | $                  | 1,567  |  |                        | $ | 1,568  |                  |  | $ | 110                |  |  | $                      | 189   |  |                  | $ | 189    |  |  | $ | 189 | 
|Real estate construction            |  |                    | 2,978  |  |                        |   | 4,861  |                  |  |   | 43                 |  |  |                        |      |  |                  |   |       |  |  |   |    | 
|Residential real estate first lien  |  |                    |       |  |                        |   |       |                  |  |   |                   |  |  |                        | 507   |  |                  |   | 507    |  |  |   | 2   | 
|Residential real estate second lien |  |                    |       |  |                        |   |       |                  |  |   |                   |  |  |                        | 372   |  |                  |   | 372    |  |  |   | 372 | 
|Total:                              |  |                    |        |  |                        |   |        |                  |  |   |                    |  |  |                        |       |  |                  |   |        |  |  |   |     | 
|Commercial                          |  | $                  | 15,673 |  |                        | $ | 24,517 |                  |  | $ | 153                |  |  | $                      | 8,305 |  |                  | $ | 12,108 |  |  | $ | 189 | 
|Consumer                            |  |                    | 6,477  |  |                        |   | 7,889  |                  |  |   |                   |  |  |                        | 6,872 |  |                  |   | 8,272  |  |  |   | 374 | 



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



The credit risk profile of our commercial loans aggregated by internally assigned grade
is as follows:



|                |  |                |        |  |                       |   |        |                         |  |   |            |  |  |                       |        |  |                         |   |        |  |  |   |        | 
|--------------- |  | -------------- | ------ |  | --------------------- | - | ------ | ----------------------- |  | - | ---------- |  |  | --------------------- | ------ |  | ----------------------- | - | ------ |  |  | - | ------ | 
|                |  | March 31, 2011 |        |  | December 31, 2010     |  
|                |  | Commercial     |        |  | CommercialReal Estate |   |        | Real EstateConstruction |  |   | Commercial |  |  | CommercialReal Estate |        |  | Real EstateConstruction |  
|                |  |                |        |  |                       |  
|Grade:          |  |                |        |  |                       |   |        |                         |  |   |            |  |  |                       |        |  |                         |   |        |  |  |   |        | 
|Watch           |  | $              | 4,138  |  |                       | $ | 6,333  |                         |  | $ | 5,801      |  |  | $                     | 5,074  |  |                         | $ | 10,464 |  |  | $ | 6,154  | 
|Special Mention |  |                | 3,094  |  |                       |   | 6,595  |                         |  |   | 280        |  |  |                       | 3,309  |  |                         |   | 4,475  |  |  |   | 1,100  | 
|Substandard     |  |                | 6,265  |  |                       |   | 18,629 |                         |  |   | 9,145      |  |  |                       | 8,488  |  |                         |   | 16,378 |  |  |   | 8,618  | 
|Doubtful        |  |                |       |  |                       |   |       |                         |  |   |           |  |  |                       | 189    |  |                         |   |       |  |  |   |       | 
|                |  |                |        |  |                       |   |        |                         |  |   |            |  |  |                       |        |  |                         |   |        |  |  |   |        | 
|Total           |  | $              | 13,497 |  |                       | $ | 31,557 |                         |  | $ | 15,226     |  |  | $                     | 17,060 |  |                         | $ | 31,317 |  |  | $ | 15,872 | 
|                |  |                |        |  |                       |   |        |                         |  |   |            |  |  |                       |        |  |                         |   |        |  |  |   |        | 

The credit risk profile of our consumer loans based on payment activity is as follows:



|                  |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|----------------- |  | --------------------------------- | ------- |  | ---------------------------------- | - | ------- | ---------------- |  | - | -------------- |  |  | - | ------ | 
|                  |  | Residential RealEstate First Lien |         |  | Residential RealEstate Second Lien |   |         | Home EquityLines |  |   | Consumer Other | 
|March 31, 2011    |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|Performing        |  | $                                 | 194,713 |  |                                    | $ | 262,811 |                  |  | $ | 59,832         |  |  | $ | 22,852 | 
|Nonperforming     |  |                                   | 10,299  |  |                                    |   | 475     |                  |  |   |               |  |  |   | 2      | 
|                  |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|                  |  |                                   |         | 
|Total             |  | $                                 | 205,012 |  |                                    | $ | 263,286 |                  |  | $ | 59,832         |  |  | $ | 22,854 | 
|                  |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|                  |  |                                   |         | 
|December 31, 2010 |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|                  |  |                                   |         | 
|Performing        |  | $                                 | 195,211 |  |                                    | $ | 269,020 |                  |  | $ | 60,609         |  |  | $ | 25,131 | 
|                  |  |                                   |         | 
|Nonperforming     |  |                                   | 10,320  |  |                                    |   | 707     |                  |  |   |               |  |  |   |       | 
|                  |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 
|                  |  |                                   |         | 
|Total             |  | $                                 | 205,531 |  |                                    | $ | 269,727 |                  |  | $ | 60,609         |  |  | $ | 25,131 | 
|                  |  |                                   |         |  |                                    |   |         |                  |  |   |                |  |  |   |        | 

NOTE D  REGULATORY MATTERS

We and Encore Bank are subject to various regulatory capital adequacy requirements administered by the Board of Governors of the Federal Reserve System (Federal Reserve) and the OCC. Actual and minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as of March 31, 2011 are set forth in the following table:



|                                      |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|------------------------------------- |  | ------ | ------- |  | ---------------------------- |  | ----- | ---------------------------------------------------------------------------- |  | - | ------ |  |  | ------ | ---- | - | ----- | - | ------ |  |  |  | ----- | -
|                                      |  | Actual |         |  | For CapitalAdequacy Purposes |  |       | To Be Categorized asWell Capitalized UnderPrompt CorrectiveAction
Provisions | 
|                                      |  | Amount |         |  | Ratio                        |  |       | Amount                                                                       |  |   | Ratio  |  |  | Amount |      |   | Ratio |  
|March 31, 2011                        |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Tier 1 capital (to average assets)    |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Tier 1 (leverage)                     |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 130,426 |  |                              |  | 9.29  | %                                                                            |  | $ | 56,141 |  |  |        | 4.00 | % |       |   | N/A    |  |  |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 120,689 |  |                              |  | 8.60  |                                                                              |  |   | 56,162 |  |  |        | 4.00 |   |       | $ | 70,202 |  |  |  | 5.00  | %
|Tier 1 capital (to risk-based assets) |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 130,426 |  |                              |  | 13.05 | %                                                                            |  | $ | 39,985 |  |  |        | 4.00 | % |       |   | N/A    |  |  |  | N/A   |  
|Encore Bank, N.A                      |  |        | 120,689 |  |                              |  | 12.10 |                                                                              |  |   | 39,902 |  |  |        | 4.00 |   |       | $ | 59,853 |  |  |  | 6.00  | %
|Total capital (to risk-based assets)  |  |        |         |  |                              |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 143,015 |  |                              |  | 14.31 | %                                                                            |  | $ | 79,970 |  |  |        | 8.00 | % |       |   | N/A    |  |  |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 133,262 |  |                              |  | 13.36 |                                                                              |  |   | 79,803 |  |  |        | 8.00 |   |       | $ | 99,754 |  |  |  | 10.00 | %



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



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.

NOTE F  EARNINGS PER COMMON SHARE

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



|                                                                                           |  |                              |        |  |      |   |        |  
|------------------------------------------------------------------------------------------ |  | ---------------------------- | ------ |  | ---- | - | ------ | -
|                                                                                           |  | Three Months Ended March 31, |       
|                                                                                           |  | 2011                         |        |  | 2010 |  
|Basic:                                                                                     |  |                              |        |  |      |   |        |  
|Earnings (loss) available to common shareholders                                           |  | $                            | 594    |  |      | $ | (2,807 | )
|Average common shares outstanding, including nonvested restricted stock                    |  |                              | 11,491 |  |      |   | 10,558 |  
|Per Share                                                                                  |  | $                            | 0.05   |  |      | $ | (0.27  | )
|Diluted:                                                                                   |  |                              |        |  |      |   |        |  
|Average common shares outstanding                                                          |  |                              | 11,491 |  |      |   | 10,558 |  
|Add:    Net effect of the assumed exercise of stock options                                |  |                              | 84     |  |      |   |       |  
|                                                                                           |  |                              |        |  |      |   |        |  
|Diluted average common shares outstanding                                                  |  |                              | 11,575 |  |      |   | 10,558 |  
|Per Share                                                                                  |  | $                            | 0.05   |  |      | $ | (0.27  | )
|Anti-dilutive stock options and warrants not included in treasury stock method computation |  |                              | 715    |  |      |   | 1,343  |  
|Preferred dividends deducted from net earnings (loss)                                      |  |                              | 558    |  |      |   | 556    |  

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



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



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



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



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



The tables below present the balances of assets measured at fair value on a recurring
basis as of March 31, 2011 and December 31, 2010:



|                                                     |  |                   |         |  |         |   |         |         |  |   |         | 
|---------------------------------------------------- |  | ----------------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- | 
|                                                     |  | March 31, 2011    |        
|Description                                          |  | Total             |         |  | Level 1 |   |         | Level 2 | 
|U.S. Government securities                           |  | $                 | 155,772 |  |         | $ | 138,554 |         |  | $ | 17,218  | 
|Securities of U.S. states and political subdivisions |  |                   | 6,871   |  |         |   |        |         |  |   | 6,871   | 
|Mortgage-backed securities                           |  |                   | 56,938  |  |         |   |        |         |  |   | 56,938  | 
|Corporate securities                                 |  |                   | 13,803  |  |         |   |        |         |  |   | 13,803  | 
|Other securities                                     |  |                   | 7,986   |  |         |   | 3,218   |         |  |   | 4,768   | 
|                                                     |  |                   |         |  |         |   |         |         |  |   |         | 
|Total available-for-sale securities                  |  | $                 | 241,370 |  |         | $ | 141,772 |         |  | $ | 99,598  | 
|                                                     |  |                   |         |  |         |   |         |         |  |   |         | 
|                                                     | 
|                                                     |  | December 31, 2010 |        
|Description                                          |  | Total             |         |  | Level 1 |   |         | Level 2 | 
|U.S. Government securities                           |  | $                 | 162,655 |  |         | $ | 145,009 |         |  | $ | 17,646  | 
|Securities of U.S. states and political subdivisions |  |                   | 7,378   |  |         |   |        |         |  |   | 7,378   | 
|Mortgage-backed securities                           |  |                   | 60,144  |  |         |   |        |         |  |   | 60,144  | 
|Corporate securities                                 |  |                   | 13,420  |  |         |   |        |         |  |   | 13,420  | 
|Other securities                                     |  |                   | 8,187   |  |         |   | 3,370   |         |  |   | 4,817   | 
|                                                     |  |                   |         |  |         |   |         |         |  |   |         | 
|Total available-for-sale securities                  |  | $                 | 251,784 |  |         | $ | 148,379 |         |  | $ | 103,405 | 
|                                                     |  |                   |         |  |         |   |         |         |  |   |         | 

At March 31, 2011, the fair value of our investment in available-for-sale Level 2 U.S. Government
securities was $17,218. The investments were comprised of $14,536 fixed-rate U.S. agency securities with a weighted average coupon rate of 1.9% and a weighted average life of 4.6 years and $2,682 variable-rate SBA pool securities with a weighted
average coupon rate of 3.3% and a weighted average life of 5.0 years. To estimate their value and the value of other available-for-sale securities discussed below, we used a third party broker to value the securities using standard market matrix
pricing for similar securities.

At March 31, 2011, the fair value of our investment in available-for-sale Level 2
securities of U.S. states and political subdivisions was $6,871. The investments were comprised of fixed-rate securities issued by municipal entities in Texas, with a weighted average coupon rate of 5.1% and a weighted average life of 14.4 years.

At March 31, 2011, the fair value of our investment in available-for-sale Level 2 mortgage-backed securities was
$56,938. These investments were comprised of $26,622 fixed-rate GNMA and FNMA backed securities with a weighted average coupon rate of 4.0% and a weighted average life of 3.8 years and $30,316 variable-rate GNMA and FNMA backed securities with a
weighted average coupon rate of 3.1% and a weighted average life of 3.9 years.

At March 31, 2011, the fair value of our
investment in available-for-sale Level 2 corporate securities was $13,803. The investments were comprised of $9,349 fixed-rate corporate bonds with a weighted average coupon rate of 5.7% and a weighted average life of 9.4 years and $4,454
variable-rate corporate bonds with a weighted average coupon rate of 6.0% and a weighted average life of 9.4 years.

At
March 31, 2011, the fair value of our investment in available-for-sale Level 2 other securities was $4,768. The investments were comprised of fixed-rate collateralized mortgage obligations with a weighted average coupon rate of 2.0% and a
weighted average life of 4.3 years.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



For assets measured at fair value on a nonrecurring basis during 2011 that were still
held on the balance sheet at March 31, 2011, 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 3 |   |        | Losses for theThree Months 
EndedMarch 31, 2011 | 
|                          |  |       |       
|Loans held-for-sale       |  | $     | 2,288  |  |         | $ | 2,288  |                                                 |  | $ |    | 
|Loans                     |  |       | 6,124  |  |         |   | 6,124  |                                                 |  |   | 686 | 
|Investment in real estate |  |       | 7,311  |  |         |   | 7,311  |                                                 |  |   | 13  | 
|                          |  |       |        |  |         |   |        |                                                 |  |   |     | 
|Total                     |  | $     | 15,723 |  |         | $ | 15,723 |                                                 |  | $ | 699 | 
|                          |  |       |        |  |         |   |        |                                                 |  |   |     | 

We wrote down certain loans receivable that are collateralized by real estate to their appraised value less
estimated costs to sell resulting in an impairment charge of $686 against the allowance for loan losses. We wrote down certain foreclosed real estate properties to their appraised value less estimated costs to sell resulting in an impairment charge
of $13, which was included in earnings for the period.

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



|                          |  |       |        |  |         |   |        |                                           |  |   |        | 
|------------------------- |  | ----- | ------ |  | ------- | - | ------ | ----------------------------------------- |  | - | ------ | 
|Description               |  | Total |        |  | Level 3 |   |        | Losses for theYear EndedDecember 31, 2010 | 
|                          |  |       |       
|Loans held-for-sale       |  | $     | 9,615  |  |         | $ | 9,615  |                                           |  | $ | 7,738  | 
|Loans                     |  |       | 10,042 |  |         |   | 10,042 |                                           |  |   | 6,782  | 
|Investment in real estate |  |       | 9,298  |  |         |   | 9,298  |                                           |  |   | 3,479  | 
|                          |  |       |        |  |         |   |        |                                           |  |   |        | 
|Total                     |  | $     | 28,955 |  |         | $ | 28,955 |                                           |  | $ | 17,999 | 
|                          |  |       |        |  |         |   |        |                                           |  |   |        | 

During the year ended December 31, 2010, loans held-for-sale as of December 31, 2010, were written
down $7,738 based on third party valuations.

We wrote down certain loans receivable that are collateralized by real estate to
their appraised value less estimated costs to sell resulting in an impairment charge of $4,459 against the allowance for loan losses. An additional $2,323 was recorded as noninterest expense related to loans reclassified from held-for-sale to loans
receivable. We wrote down certain foreclosed real estate properties to their appraised value less estimated costs to sell resulting in an impairment charge of $3,479, which was included in earnings for the period.

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

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.



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##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



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



|                                       |  |                |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|-------------------------------------- |  | -------------- | --------- |  | ------------------- | - | --------- | -------------- |  | - | ------------------- |  |  | - | --------- | 
|                                       |  | March 31, 2011 |           |  | December 31, 2010   |  
|                                       |  | CarryingAmount |           |  | EstimatedFair Value |   |           | CarryingAmount |  |   | EstimatedFair Value | 
|Financial assets:                      |  |                |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|Cash and cash equivalents              |  | $              | 68,442    |  |                     | $ | 68,442    |                |  | $ | 64,099              |  |  | $ | 64,099    | 
|Securities available-for-sale          |  |                | 241,370   |  |                     |   | 241,370   |                |  |   | 251,784             |  |  |   | 251,784   | 
|Securities held-to-maturity            |  |                | 101,235   |  |                     |   | 102,753   |                |  |   | 107,618             |  |  |   | 109,738   | 
|Loans held-for-sale                    |  |                | 2,913     |  |                     |   | 2,913     |                |  |   | 10,915              |  |  |   | 10,915    | 
|Loans receivable, net                  |  |                | 917,028   |  |                     |   | 941,525   |                |  |   | 901,818             |  |  |   | 925,426   | 
|Federal Home Loan Bank of Dallas stock |  |                | 10,206    |  |                     |   | 10,206    |                |  |   | 9,610               |  |  |   | 9,610     | 
|Accrued interest receivable            |  |                | 5,107     |  |                     |   | 5,107     |                |  |   | 5,191               |  |  |   | 5,191     | 
|                                       |  |                |           | 
|Financial liabilities:                 |  |                |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|Deposits                               |  | $              | 1,040,792 |  |                     | $ | 1,045,033 |                |  | $ | 1,050,444           |  |  | $ | 1,052,325 | 
|Borrowings and repurchase agreements   |  |                | 221,582   |  |                     |   | 238,077   |                |  |   | 219,777             |  |  |   | 235,220   | 
|Accrued interest payable               |  |                | 1,034     |  |                     |   | 1,034     |                |  |   | 1,154               |  |  |   | 1,154     | 
|Junior subordinated debentures         |  |                | 20,619    |  |                     |   | 21,353    |                |  |   | 20,619              |  |  |   | 21,305    | 

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.

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

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



Financial results by operating segment were as follows:



|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|----------------------------------- |  | ------- | --------- | - | ---------------- | - | ------ | --------- |  | - | ----- |  |  | ------------ | ------- | - |  | - | --------- | -
|                                    |  | Banking |           |   | WealthManagement |   |        | Insurance |  |   | Other |  |  | Consolidated |        
|Three months ended March 31, 2011   |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|                                    |  |         |           |   |                 
|Net interest income (expense)       |  | $       | 11,367    |   |                  | $ | 24     |           |  | $ | 2     |  |  | $            | (298    | ) |  | $ | 11,095    |  
|Provision for loan losses           |  |         | 2,170     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 2,170     |  
|Noninterest income                  |  |         | 529       |   |                  |   | 5,089  |           |  |   | 1,448 |  |  |              |        |   |  |   | 7,066     |  
|Noninterest expense                 |  |         | 9,563     |   |                  |   | 3,643  |           |  |   | 1,149 |  |  |              |        |   |  |   | 14,355    |  
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |         | 163       |   |                  |   | 1,470  |           |  |   | 301   |  |  |              | (298    | ) |  |   | 1,636     |  
|Income tax expense (benefit)        |  |         | (34       | ) |                  |   | 516    |           |  |   | 106   |  |  |              | (104    | ) |  |   | 484       |  
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $       | 197       |   |                  | $ | 954    |           |  | $ | 195   |  |  | $            | (194    | ) |  | $ | 1,152     |  
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at March 31, 2011      |  | $       | 1,467,887 |   |                  | $ | 64,157 |           |  | $ | 6,827 |  |  | $            | (80,690 | ) |  | $ | 1,458,181 |  
|                                    |  |         |           |   |                 
|Three months ended March 31, 2010   |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|                                    |  |         |           |   |                 
|Net interest income (expense)       |  | $       | 11,742    |   |                  | $ | 40     |           |  | $ | 5     |  |  | $            | (297    | ) |  | $ | 11,490    |  
|Provision for loan losses           |  |         | 4,960     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 4,960     |  
|Noninterest income                  |  |         | 647       |   |                  |   | 4,618  |           |  |   | 1,644 |  |  |              |        |   |  |   | 6,909     |  
|Noninterest expense                 |  |         | 13,675    |   |                  |   | 3,562  |           |  |   | 1,027 |  |  |              |        |   |  |   | 18,264    |  
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |         | (6,246    | ) |                  |   | 1,096  |           |  |   | 622   |  |  |              | (297    | ) |  |   | (4,825    | )
|Income tax expense (benefit)        |  |         | (3,076    | ) |                  |   | 388    |           |  |   | 218   |  |  |              | (104    | ) |  |   | (2,574    | )
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $       | (3,170    | ) |                  | $ | 708    |           |  | $ | 404   |  |  | $            | (193    | ) |  | $ | (2,251    | )
|                                    |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at March 31, 2010      |  | $       | 1,645,468 |   |                  | $ | 61,316 |           |  | $ | 8,053 |  |  | $            | (76,921 | ) |  | $ | 1,637,916 |  



20



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##### Table of Contents

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

Special Cautionary Notice Regarding Forward-Looking Statements

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

Many possible events or factors could affect our future financial
results and performance and could cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the other factors discussed in the Risk Factors
section of our Annual Report on Form 10-K for the year ended December 31, 2010, factors that could contribute to those differences include, but are not limited to:



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



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



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



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



| |  |  | our ability to raise capital when needed or on terms favorable to us;
| | - |  | ---------------------------------------------------------------------



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



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



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



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



| |  |  | our ability to continue to originate loans and grow core deposits;
| | - |  | ------------------------------------------------------------------



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



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



| |  |  | our ability to fully realize our net deferred tax asset;
| | - |  | --------------------------------------------------------



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



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



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



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



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



| |  |  | the potential payment of interest on demand deposit accounts to effectively compete for clients;
| | - |  | ------------------------------------------------------------------------------------------------



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



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



| |  |  | regulatory restrictions on Encore Banks ability to pay dividends to us and on our ability to make payments on our obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential environmental liability risk associated with lending activities;
| | - |  | --------------------------------------------------------------------------



| |  |  | 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
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

| |  |  | 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 financial 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. Six private client offices in Florida were sold in 2010. We also operate five wealth management offices and three insurance offices in Texas. As of
March 31, 2011, we reported, on a consolidated basis, total assets of $1.5 billion, total loans of $938.9 million, total deposits of $1.0 billion, shareholders equity of $167.9 million and $2.9 billion in assets under management.

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 and Estimates 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, 2010.

This report contains certain financial information determined by methods other than in accordance with US GAAP. These measures include
net interest income, net interest spread and net interest margin on a taxable-equivalent basis, which is common practice in the banking industry. We have included in this report information related to these non-GAAP financial measures for the
applicable periods presented. We believe these non-GAAP financial measures provide information useful to investors in understanding our financial results and believe that its presentation, together with the accompanying reconciliation, provides a
complete understanding of factors and trends affecting our business and allows investors to view performance in a manner similar to management, the entire financial services sector, bank stock analysts and bank regulators. These non-GAAP measures
should not be considered a substitute for operating results determined in accordance with GAAP and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies non-GAAP financial measures having the same or similar names.

Results of Operations

Net earnings for the quarter ended March 31, 2011 were $1.2 million, or $0.05 per diluted common share, compared with a loss of $2.3 million, or $0.27 loss per diluted common share, for the quarter
ended March 31, 2010. The loss in the first quarter of 2010 was due primarily to a $4.3 million write down of Florida assets held-for-sale, including a $1.8 million charge to the allowance for loan losses. During 2010, we sold our Florida
operations in three transactions, which resulted in the sale of $231.3 million in deposits and $86.8 million in loans. The last transaction was completed on December 31, 2010.

We posted a return on average common equity of 1.75% and (7.20)%, a return on average assets of 0.32% and (0.56)%, and an efficiency
ratio of 78.02% and 85.09% for the quarters ended March 31, 2011 and 2010. The efficiency ratio is calculated by dividing total noninterest expense (excluding amortization of intangibles and write down of assets held-for-sale) by the sum of net
interest income and noninterest income (excluding gains or losses on sales of securities).

Net Interest Income

Our operating results are significantly impacted by net interest income, which represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is a key source of our earnings. Interest rate fluctuations,
as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income.



22



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##### Table of Contents

Net interest income on a fully taxable-equivalent basis (TE) was $11.2 million for the three
months ended March 31, 2011, a decrease of $404,000, or 3.5%, compared with the first quarter of 2010. Average earning assets declined $167.1 million, or 11.0%, due primarily to the sale of our Florida operations. The net interest margin (TE)
increased 26 basis points to 3.37% for the same comparison period, due primarily to the improvement in balance sheet mix as temporary investments decreased and higher costing deposits decreased primarily due to the sale of our Florida operations. In
addition, average noninterest-bearing deposits were $210.9 million for the first quarter of 2011, a $46.9 million, or 28.6%, increase compared with the same period of 2010.

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



23



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##### Table of Contents

Taxable-Equivalent Yield Analysis



|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|----------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------- | - | ------ | ----------------- |  |  | ------------------------- | - |  | ---------------------- | --------- | - | ----------------- | - | ------ |  |  |  | ---- | -
|                                                |  | Three Months Ended March 31, |          
|                                                |  | 2011                         |           |   | 2010                   |  
|                                                |  | AverageOutstandingBalance    |           |   | InterestIncome/Expense |   |        | AverageYield/Rate |  |  | AverageOutstandingBalance |   |  | InterestIncome/Expense |           |   | AverageYield/Rate |  
|                                                |  | (dollars in thousands)       |          
|                                                |  |                              |           |   |                        |  
|Assets:                                         |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-earning assets:                        |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Loans  TE yield (1)                            |  | $                            | 933,361   |   |                        | $ | 13,495 |                   |  |  | 5.86                      | % |  | $                      | 1,064,375 |   |                   | $ | 15,760 |  |  |  | 6.00 | %
|Securities  TE yield (1)                       |  |                              | 354,250   |   |                        |   | 2,369  |                   |  |  | 2.71                      |   |  |                        | 230,390   |   |                   |   | 2,106  |  |  |  | 3.71 |  
|Federal funds sold and other                    |  |                              | 60,084    |   |                        |   | 92     |                   |  |  | 0.62                      |   |  |                        | 220,019   |   |                   |   | 215    |  |  |  | 0.40 |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-earning assets  TE yield (1)    |  |                              | 1,347,695 |   |                        |   | 15,956 |                   |  |  | 4.80                      |   |  |                        | 1,514,784 |   |                   |   | 18,081 |  |  |  | 4.84 |  
|Less: Allowance for loan losses                 |  |                              | (18,604   | ) |                        |   |        |                   |  |  |                           |   |  |                        | (26,672   | ) |                   |   |        |  |  |  |      |  
|Noninterest-earning assets                      |  |                              | 131,183   |   |                        |   |        |                   |  |  |                           |   |  |                        | 126,284   |   |                   |   |        |  |  |  |      |  
|Noninterest-earning assets held-for-sale (2)    |  |                              |          |   |                        |   |        |                   |  |  |                           |   |  |                        | 7,377     |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total assets                                    |  | $                            | 1,460,274 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,621,773 |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |  
|Liabilities and shareholders equity:           |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-bearing liabilities:                   |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest checking                               |  | $                            | 162,577   |   |                        | $ | 91     |                   |  |  | 0.23                      | % |  | $                      | 153,023   |   |                   | $ | 122    |  |  |  | 0.32 | %
|Money market and savings                        |  |                              | 287,029   |   |                        |   | 309    |                   |  |  | 0.44                      |   |  |                        | 240,292   |   |                   |   | 506    |  |  |  | 0.85 |  
|Time deposits                                   |  |                              | 379,142   |   |                        |   | 1,940  |                   |  |  | 2.08                      |   |  |                        | 400,451   |   |                   |   | 2,414  |  |  |  | 2.44 |  
|Interest-bearing deposits held-for-sale (2)     |  |                              |          |   |                        |   |       |                   |  |  |                           |   |  |                        | 219,809   |   |                   |   | 1,010  |  |  |  | 1.86 |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing deposits                 |  |                              | 828,748   |   |                        |   | 2,340  |                   |  |  | 1.15                      |   |  |                        | 1,013,575 |   |                   |   | 4,052  |  |  |  | 1.62 |  
|Borrowings and repurchase agreements            |  |                              | 224,792   |   |                        |   | 2,106  |                   |  |  | 3.80                      |   |  |                        | 220,759   |   |                   |   | 2,116  |  |  |  | 3.89 |  
|Junior subordinated debentures                  |  |                              | 20,619    |   |                        |   | 298    |                   |  |  | 5.86                      |   |  |                        | 20,619    |   |                   |   | 297    |  |  |  | 5.84 |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing liabilities              |  |                              | 1,074,159 |   |                        |   | 4,744  |                   |  |  | 1.79                      |   |  |                        | 1,254,953 |   |                   |   | 6,465  |  |  |  | 2.09 |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |  
|Noninterest-bearing liabilities:                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits                    |  |                              | 210,885   |   |                        |   |        |                   |  |  |                           |   |  |                        | 146,779   |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits held-for-sale (2)  |  |                              |          |   |                        |   |        |                   |  |  |                           |   |  |                        | 17,213    |   |                   |   |        |  |  |  |      |  
|Other liabilities                               |  |                              | 8,344     |   |                        |   |        |                   |  |  |                           |   |  |                        | 15,412    |   |                   |   |        |  |  |  |      |  
|Other liabilities held-for-sale (2)             |  |                              |          |   |                        |   |        |                   |  |  |                           |   |  |                        | 303       |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities                               |  |                              | 1,293,388 |   |                        |   |        |                   |  |  |                           |   |  |                        | 1,434,660 |   |                   |   |        |  |  |  |      |  
|Shareholders equity                            |  |                              | 166,886   |   |                        |   |        |                   |  |  |                           |   |  |                        | 187,113   |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities and shareholders equity      |  | $                            | 1,460,274 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,621,773 |   |                   |   |        |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income TE (1)                      |  |                              |           |   |                        | $ | 11,212 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 11,616 |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest spread TE (1)                      |  |                              |           |   |                        |   |        |                   |  |  | 3.01                      | % |  |                        |           |   |                   |   |        |  |  |  | 2.75 | %
|Net interest margin TE (1)                      |  |                              |           |   |                        |   |        |                   |  |  | 3.37                      | % |  |                        |           |   |                   |   |        |  |  |  | 3.11 | %
|Net interest income (GAAP)                      |  |                              |           |   |                        | $ | 11,095 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 11,490 |  |  |  |      |  
|Taxable-equivalent adjustment                   |  |                              |           |   |                        |   | 117    |                   |  |  |                           |   |  |                        |           |   |                   |   | 126    |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income on taxable-equivalent basis |  |                              |           |   |                        | $ | 11,212 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 11,616 |  |  |  |      |  
|                                                |  |                              |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  



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

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



24



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##### Table of Contents

Provision for Loan Losses

The provision for loan losses is the amount we determine necessary to be charged against the current periods earnings to maintain the allowance for loan losses at a level that is considered adequate
in relation to the estimated losses inherent in the loan portfolio. The provision was $2.2 million for the three months ended March 31, 2011, compared with $5.0 million for 2010. The change in the provision primarily reflects the amount we
considered necessary to absorb estimated losses incurred in the loan portfolio. The provision for loan losses in the first quarter of 2011 includes the impact of the sale of our Florida operations, and the reduced concentration of loans in Florida,
as well as the lower level of nonperforming assets in the first quarter of 2011 compared with the first quarter of 2010.

Noninterest
Income

Noninterest income represented 38.91% and 37.55% of total revenue for the three months ended March 31, 2011
and 2010.

Noninterest income increased $157,000, or 2.3%, to $7.1 million for the three months ended March 31, 2011,
compared with the same period in 2010. The increase was primarily due to trust and investment management fees, which rose $454,000, or 9.8%, to $5.1 million, partially offset by a decrease in insurance commissions. The increase in trust and
investment management fees was due primarily to a 2.5% increase in assets under management.

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



|                                                         |  |                             |       |   |      |   |       | 
|-------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | 
|                                                         |  | Three MonthsEnded March 31, |      
|                                                         |  | 2011                        |       |   | 2010 |  
|                                                         |  | (dollars in thousands)      |      
|Trust and investment management fees                     |  | $                           | 5,072 |   |      | $ | 4,618 | 
|Mortgage banking                                         |  |                             | 140   |   |      |   | 36    | 
|Insurance commissions and fees                           |  |                             | 1,440 |   |      |   | 1,639 | 
|Net gain (loss) on sale of available-for-sale securities |  |                             | (31   | ) |      |   | 99    | 
|Other                                                    |  |                             | 445   |   |      |   | 517   | 
|                                                         |  |                             |       |   |      |   |       | 
|Total noninterest income                                 |  | $                           | 7,066 |   |      | $ | 6,909 | 
|                                                         |  |                             |       |   |      |   |       | 

Noninterest Expense

Noninterest expense was $14.4 million for the three months ended March 31, 2011, a decrease of $3.9 million, compared with the same period of 2010. Noninterest expense in 2010 included a $2.5 million
write down of premises and equipment in Florida that was sold and $1.1 million in foreclosed real estate expenses. Partially offsetting these expense reductions was higher compensation expense, which was mainly related to our wealth management
business and our insurance agency, which added a new group in our Fort Worth office. In addition, professional fees increased compared with the prior year quarter, which was primarily related to higher audit fees.



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##### Table of Contents

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



|                                     |  |                             |        |  |      |   |        | 
|------------------------------------ |  | --------------------------- | ------ |  | ---- | - | ------ | 
|                                     |  | Three MonthsEnded March 31, |       
|                                     |  | 2011                        |        |  | 2010 |  
|                                     |  | (dollars in thousands)      |       
|Compensation                         |  | $                           | 8,706  |  |      | $ | 8,551  | 
|Non-staff expenses:                  |  |                             |        |  |      |   |        | 
|Occupancy                            |  |                             | 1,287  |  |      |   | 1,478  | 
|Equipment                            |  |                             | 241    |  |      |   | 363    | 
|Advertising and promotion            |  |                             | 156    |  |      |   | 181    | 
|Outside data processing              |  |                             | 783    |  |      |   | 870    | 
|Professional fees                    |  |                             | 1,134  |  |      |   | 921    | 
|Intangible amortization              |  |                             | 140    |  |      |   | 158    | 
|FDIC assessment                      |  |                             | 798    |  |      |   | 655    | 
|Foreclosed real estate expenses, net |  |                             | 83     |  |      |   | 1,124  | 
|Write down of assets held-for-sale   |  |                             | 21     |  |      |   | 2,535  | 
|Other                                |  |                             | 1,006  |  |      |   | 1.428  | 
|                                     |  |                             |        |  |      |   |        | 
|Total noninterest expense            |  | $                           | 14,355 |  |      | $ | 18,264 | 
|                                     |  |                             |        |  |      |   |        | 

Income Tax Expense

The income tax expense was $484,000 for the three months ended March 31, 2011, compared with a benefit of $2.6 million for the same three months of 2010. The effective tax rate for the three months
ended March 31, 2011 and 2010 was 29.6% and 53.3%. The effective rate in 2010 was affected by lower income levels and by non-taxable income.

Result of Segment Operations

We manage the company along three operating
segments: banking, wealth management and insurance. The column identified as Other includes the parent company and the elimination transactions between segments. The accounting policies of the individual operating segments are the same
as our accounting policies described in Note A to our consolidated financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K.



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##### Table of Contents

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



|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|----------------------------------- |  | ---------------------- | --------- | - | ---------------- | - | ------ | --------- |  | - | ----- |  |  | ------------ | ------- | - |  | - | --------- | -
|                                    |  | Banking                |           |   | WealthManagement |   |        | Insurance |  |   | Other |  |  | Consolidated |        
|                                    |  | (dollars in thousands) |          
|Three months ended March 31, 2011   |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)       |  | $                      | 11,367    |   |                  | $ | 24     |           |  | $ | 2     |  |  | $            | (298    | ) |  | $ | 11,095    |  
|Provision for loan losses           |  |                        | 2,170     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 2,170     |  
|Noninterest income                  |  |                        | 529       |   |                  |   | 5,089  |           |  |   | 1,448 |  |  |              |        |   |  |   | 7,066     |  
|Noninterest expense                 |  |                        | 9,563     |   |                  |   | 3,643  |           |  |   | 1,149 |  |  |              |        |   |  |   | 14,355    |  
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |                        | 163       |   |                  |   | 1,470  |           |  |   | 301   |  |  |              | (298    | ) |  |   | 1,636     |  
|Income tax expense (benefit)        |  |                        | (34       | ) |                  |   | 516    |           |  |   | 106   |  |  |              | (104    | ) |  |   | 484       |  
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $                      | 197       |   |                  | $ | 954    |           |  | $ | 195   |  |  | $            | (194    | ) |  | $ | 1,152     |  
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at March 31, 2011      |  | $                      | 1,467,887 |   |                  | $ | 64,157 |           |  | $ | 6,827 |  |  | $            | (80,690 | ) |  | $ | 1,458,181 |  
|                                    |  |                        |           |   |                 
|Three months ended March 31, 2010   |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)       |  | $                      | 11,742    |   |                  | $ | 40     |           |  | $ | 5     |  |  | $            | (297    | ) |  | $ | 11,490    |  
|Provision for loan losses           |  |                        | 4,960     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 4,960     |  
|Noninterest income                  |  |                        | 647       |   |                  |   | 4,618  |           |  |   | 1,644 |  |  |              |        |   |  |   | 6,909     |  
|Noninterest expense                 |  |                        | 13,675    |   |                  |   | 3,562  |           |  |   | 1,027 |  |  |              |        |   |  |   | 18,264    |  
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes |  |                        | (6,246    | ) |                  |   | 1,096  |           |  |   | 622   |  |  |              | (297    | ) |  |   | (4,825    | )
|Income tax expense (benefit)        |  |                        | (3,076    | ) |                  |   | 388    |           |  |   | 218   |  |  |              | (104    | ) |  |   | (2,574    | )
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                 |  | $                      | (3,170    | ) |                  | $ | 708    |           |  | $ | 404   |  |  | $            | (193    | ) |  | $ | (2,251    | )
|                                    |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at March 31, 2010      |  | $                      | 1,645,468 |   |                  | $ | 61,316 |           |  | $ | 8,053 |  |  | $            | (76,921 | ) |  | $ | 1,637,916 |  

Banking

Net earnings for the three months ended March 31, 2011 were $197,000, compared with a net loss of $3.2 million in the same period of
2010. The 2010 loss resulted primarily from a $4.3 million write down of Florida assets held-for-sale, including $1.8 million charged to the allowance for loan losses.

Net interest income for the three months ended March 31, 2011 decreased $375,000, or 3.2%, compared with the same period of 2010. See the analysis of net interest income included in the section of
this report captioned Net Interest Income.

The provision for loan losses for the three months ended
March 31, 2011 totaled $2.2 million compared with $5.0 million in 2010. See analysis of the provision for loan losses included in the section of this report captioned Provision for Loan Losses.

Noninterest income for the three months ended March 31, 2011 decreased $118,000 compared with the same period in 2010, which was due
largely to lower gain on sale of securities.

Noninterest expense for the three months ended March 31, 2011 decreased
$4.1 million compared with the same period in 2010 primarily due to a $2.5 million write down of Florida assets held-for-sale and $1.1 million of foreclosed real estate expenses in 2010.

Wealth Management

Net earnings for the three months ended March 31,
2011 increased $246,000, or 34.7%, compared with the same period in 2010. The increase in earnings was due primarily to an increase in assets under management. Assets under management were $2.9 billion as of March 31, 2011 compared with $2.8
billion as of March 31, 2010, a 2.5% increase.

Noninterest income for the three months ended March 31, 2011
increased $471,000, or 10.2%, compared with the same period in 2010, resulted mainly from increased assets under management.

Noninterest expense for the three months ended March 31, 2011 increased $81,000, or 2.3%, compared with the same period in 2010
primarily due to increased compensation.



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##### Table of Contents

Insurance

Net earnings for the three months ended March 31, 2011 decreased $209,000 compared with the same period of 2010. Commission revenue decreased $196,000 due to a lower contingent commissions.
Noninterest expense increased $122,000 reflecting growth in the Fort Worth office.

Other

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

Financial Condition

Our total assets decreased $8.3 million, or 0.6%, to $1.5 billion as of March 31, 2011 compared with December 31, 2010. Our loan
portfolio increased $7.6 million, or 0.8%, to $938.9 million as of March 31, 2011. Our securities portfolio decreased $16.8 million, or 4.7%, to $342.6 million compared with $359.4 million as of December 31, 2010. Shareholders equity
increased $1.3 million, or 0.8%, to $167.9 million compared with $166.6 million as of December 31, 2010.

Loan Portfolio

Our primary lending focus is to privately-owned businesses, investors, professional firms, and affluent individuals. To
these customers, we make commercial, commercial real estate, real estate construction, residential real estate and consumer loans. Total commercial loans, which consist of commercial, commercial real estate and real estate construction loans,
accounted for 41.0% of our portfolio as of March 31, 2011. Total consumer loans, which consist of residential real estate, home equity lines of credit and other consumer loans, made up 58.7% of our loan portfolio as of March 31, 2011.
Loans held-for-sale composed 0.3% of our portfolio. During the first quarter of 2011, we transferred $7.3 million of loans from held-for-sale to the loan portfolio.

Total loans were $938.9 million as of March 31, 2011, an increase of $7.6 million, or 0.8%, compared with December 31, 2010.

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



|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|----------------------------------- |  | ---------------------- | ------- |  | ---------------- |  | ----- | ------ |  | - | ------- |  |  |  | ----- | -
|                                    |  | March 31,2011          |         |  | December 31,2010 | 
|                                    |  | Amount                 |         |  | Percent          |  |       | Amount |  |   | Percent | 
|                                    |  | (dollars in thousands) |        
|Commercial:                         |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Commercial                          |  | $                      | 164,053 |  |                  |  | 17.5  | %      |  | $ | 147,090 |  |  |  | 15.8  | %
|Commercial real estate              |  |                        | 168,893 |  |                  |  | 18.0  |        |  |   | 166,043 |  |  |  | 17.8  |  
|Real estate construction            |  |                        | 52,106  |  |                  |  | 5.5   |        |  |   | 46,326  |  |  |  | 5.0   |  
|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Total commercial                    |  |                        | 385,052 |  |                  |  | 41.0  |        |  |   | 359,459 |  |  |  | 38.6  |  
|                                    |  |                        |         | 
|Consumer:                           |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Residential real estate first lien  |  |                        | 205,012 |  |                  |  | 21.8  |        |  |   | 205,531 |  |  |  | 22.1  |  
|Residential real estate second lien |  |                        | 263,286 |  |                  |  | 28.1  |        |  |   | 269,727 |  |  |  | 28.9  |  
|Home equity lines                   |  |                        | 59,832  |  |                  |  | 6.4   |        |  |   | 60,609  |  |  |  | 6.5   |  
|Consumer other                      |  |                        | 22,854  |  |                  |  | 2.4   |        |  |   | 25,131  |  |  |  | 2.7   |  
|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Total consumer                      |  |                        | 550,984 |  |                  |  | 58.7  |        |  |   | 560,998 |  |  |  | 60.2  |  
|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Loans receivable                    |  |                        | 936,036 |  |                  |  | 99.7  |        |  |   | 920,457 |  |  |  | 98.8  |  
|Loans held-for-sale                 |  |                        | 2,913   |  |                  |  | 0.3   |        |  |   | 10,915  |  |  |  | 1.2   |  
|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  
|Total loans                         |  | $                      | 938,949 |  |                  |  | 100.0 | %      |  | $ | 931,372 |  |  |  | 100.0 | %
|                                    |  |                        |         |  |                  |  |       |        |  |   |         |  |  |  |       |  



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Nonperforming Assets

The following table presents information regarding nonperforming assets, accruing loans past due 90 days or more and restructured loans still accruing as of the dates indicated:



|                                                                  |  |                        |        |   |                  |   |        |  
|----------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                  |  | March 31,2011          |        |   | December 31,2010 |  
|                                                                  |  | (dollars in thousands) |       
|Nonaccrual loans  Texas (1)                                      |  | $                      | 14,557 |   |                  | $ | 15,167 |  
|Nonaccrual loans  Florida (1)                                    |  |                        | 13,169 |   |                  |   | 11,310 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonaccrual loans (1)                                        |  |                        | 27,726 |   |                  |   | 26,477 |  
|Investment in real estate  Texas                                 |  |                        | 4,226  |   |                  |   | 4,783  |  
|Investment in real estate  Florida                               |  |                        | 3,085  |   |                  |   | 4,515  |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total investment in real estate                                   |  |                        | 7,311  |   |                  |   | 9,298  |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonperforming assets                                        |  | $                      | 35,037 |   |                  | $ | 35,775 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|                                                                  |  |                       
|Accruing loans past due 90 days or more                           |  | $                      |       |   |                  | $ | 313    |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Restructured loans still accruing                                 |  | $                      | 1,755  |   |                  | $ | 804    |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Nonperforming assets to total loans and investment in real estate |  |                        | 3.70   | % |                  |   | 3.80   | %



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

Nonperforming assets were $35.0 million and $35.8 million as of March 31, 2011 and December 31, 2010. Our ratio of nonperforming assets to total loans and investment in real estate was 3.70% and
3.80% as of March 31, 2011 and December 31, 2010. At March 31, 2011, nonaccrual loans were $27.7 million, compared with $26.5 million at December 31, 2010, an increase of $1.2 million, or 4.7%. Nonaccrual commercial loans
consisted of 3 relationships which were primarily in Houston. Commercial real estate nonaccrual loans consisted of 14 loans that are primarily in Florida. Construction and land nonaccrual loans consist of 3 relationships which are primarily in
Texas. Investment in real estate was $7.3 million at March 31, 2011 compared with $9.3 million at December 31, 2010, a decrease of $2.0 million, or 21.4%. The decrease was due mainly to the sale of repossessed land in Florida. Restructured
loans still accruing were $1.8 million as of March 31, 2011, compared with $804,000 as of December 31, 2010. Restructured loans still accruing consisted primarily of a commercial loan in Texas.



29



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##### Table of Contents

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



|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|--------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------------------- | - | --- | ------------------ |  | - | ------------------------------ |  |  | - | --- | 
|                                                          |  | March 31, 2011         |        |  | December 31, 2010               |  
|                                                          |  | OutstandingBalance     |        |  | SpecificAllocation 
ofAllowance |   |     | OutstandingBalance |  |   | SpecificAllocation ofAllowance | 
|                                                          |  | (dollars in thousands) |       
|Commercial:                                               |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Commercial                                                |  | $                      | 634    |  |                                 | $ | 110 |                    |  | $ | 741                            |  |  | $ | 189 | 
|Commercial real estate                                    |  |                        | 10,632 |  |                                 |   |    |                    |  |   | 4,484                          |  |  |   |    | 
|Real estate construction                                  |  |                        | 3,396  |  |                                 |   | 43  |                    |  |   | 3,554                          |  |  |   |    | 
|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Total commercial                                          |  |                        | 14,662 |  |                                 |   | 153 |                    |  |   | 8,779                          |  |  |   | 189 | 
|Consumer:                                                 |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Residential real estate first lien (1)                    |  |                        | 10,299 |  |                                 |   |    |                    |  |   | 10,320                         |  |  |   | 2   | 
|Residential real estate second lien and home equity lines |  |                        | 475    |  |                                 |   |    |                    |  |   | 707                            |  |  |   | 372 | 
|Consumer other                                            |  |                        | 2      |  |                                 |   |    |                    |  |   |                               |  |  |   |    | 
|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Total consumer                                            |  |                        | 10,776 |  |                                 |   |    |                    |  |   | 11,027                         |  |  |   | 374 | 
|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Loans held-for-sale                                       |  |                        | 2,288  |  |                                 |   |    |                    |  |   | 6,671                          |  |  |   |    | 
|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 
|Total nonperforming loans                                 |  | $                      | 27,726 |  |                                 | $ | 153 |                    |  | $ | 26,477                         |  |  | $ | 563 | 
|                                                          |  |                        |        |  |                                 |   |     |                    |  |   |                                |  |  |   |     | 



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

The increase in nonaccrual commercial real estate loans resulted primarily from 3 loans in Florida totaling $4.9 million. The decrease in loans held-for-sale was due in part to the resolution of a $2.1
million loan in Florida, and the reclassification of several loans that were classified as held-for-sale to the loan portfolio.

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

Allowance for Loan Losses

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

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

Net charge-offs for the first quarter of 2011 were $1.8 million, or 0.78% of average loans on an annualized basis, compared with $6.3 million, or 2.41% of average total loans on an annualized basis in
2010. The higher 2010 net charge-offs included a $2.6 million partial charge-off of a commercial real estate loan in Florida and $1.8 million related to loans held-for-sale in connection with the sale of our Florida operations.



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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 Three 
MonthsEnded March 31,2011 |         |   | As of and forthe Year EndedDecember 31,2010 |  
|                                                                                          |  | (dollars in thousands)                            |        
|Average total loans outstanding                                                           |  | $                                                 | 933,361 |   |                                             | $ | 1,046,164 |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total loans outstanding at end of period                                                  |  | $                                                 | 938,949 |   |                                             | $ | 931,372   |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Allowance for loan losses at beginning of period                                          |  | $                                                 | 18,639  |   |                                             | $ | 26,501    |  
|Charge-offs:                                                                              |  |                                                   |         |   |                                             |   |           |  
|Commercial:                                                                               |  |                                                   |         |   |                                             |   |           |  
|Commercial                                                                                |  |                                                   | (196    | ) |                                             |   | (965      | )
|Commercial real estate                                                                    |  |                                                   | (465    | ) |                                             |   | (24,527   | )
|Real estate construction                                                                  |  |                                                   | (4      | ) |                                             |   | (9,159    | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total commercial                                                                          |  |                                                   | (665    | ) |                                             |   | (34,651   | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|                                                                                          |  |                                                  
|Consumer:                                                                                 |  |                                                   |         |   |                                             |   |           |  
|Residential real estate first lien                                                        |  |                                                   | (222    | ) |                                             |   | (4,089    | )
|Residential real estate second lien                                                       |  |                                                   | (1,059  | ) |                                             |   | (3,720    | )
|Home equity lines                                                                         |  |                                                   | (296    | ) |                                             |   | (2,030    | )
|Consumer other                                                                            |  |                                                   | (36     | ) |                                             |   | (414      | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total consumer                                                                            |  |                                                   | (1,613  | ) |                                             |   | (10,253   | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total charge-offs                                                                         |  |                                                   | (2,278  | ) |                                             |   | (44,904   | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|                                                                                          |  |                                                  
|Recoveries:                                                                               |  |                                                   |         |   |                                             |   |           |  
|Commercial:                                                                               |  |                                                   |         |   |                                             |   |           |  
|Commercial                                                                                |  |                                                   | 3       |   |                                             |   | 883       |  
|Commercial real estate                                                                    |  |                                                   | 12      |   |                                             |   | 17        |  
|Real estate construction                                                                  |  |                                                   | 131     |   |                                             |   | 104       |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total commercial                                                                          |  |                                                   | 146     |   |                                             |   | 1,004     |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|                                                                                          |  |                                                  
|Consumer:                                                                                 |  |                                                   |         |   |                                             |   |           |  
|Residential real estate first lien                                                        |  |                                                   | 223     |   |                                             |   | 304       |  
|Residential real estate second lien                                                       |  |                                                   | 71      |   |                                             |   | 226       |  
|Home equity lines                                                                         |  |                                                   | 19      |   |                                             |   | 180       |  
|Consumer other                                                                            |  |                                                   | 18      |   |                                             |   | 159       |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total consumer                                                                            |  |                                                   | 331     |   |                                             |   | 869       |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Total recoveries                                                                          |  |                                                   | 477     |   |                                             |   | 1,873     |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Net charge-offs                                                                           |  |                                                   | (1,801  | ) |                                             |   | (43,031   | )
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Provision for loan losses                                                                 |  |                                                   | 2,170   |   |                                             |   | 35,169    |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|Allowance for loan losses at end of period                                                |  | $                                                 | 19,008  |   |                                             | $ | 18,639    |  
|                                                                                          |  |                                                   |         |   |                                             |   |           |  
|                                                                                          |  |                                                  
|Ratio of net charge-offs to average total loans                                           |  |                                                   | 0.78    | % |                                             |   | 4.11      | %
|Ratio of allowance for loan losses to period end loans (excluding loans held-for-sale)    |  |                                                   | 2.03    |   |                                             |   | 2.02      |  
|Ratio of allowance for loan losses to nonperforming loans (excluding loans held-for-sale) |  |                                                   | 74.72   |   |                                             |   | 94.11     |  

Securities

Total securities were $342.6 million as of March 31, 2011, a decrease of $16.8 million, or 4.7%, compared with $359.4 million as of
December 31, 2010. The decrease was due primarily to securities sales and maturities.



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Deposits

Our deposits averaged $1.0 billion for the three months ended March 31, 2011, an increase of $36.2 million, or 3.6%, over average deposits (excluding held-for-sale) for the year ended
December 31, 2010. As of March 31, 2011, core deposits (which consist of noninterest-bearing deposits, interest checking, money market and savings and time deposits less than $100,000) were $775.3 million, or 74.5%, of total deposits,
while time deposits $100,000 and greater and brokered deposits made up 25.5% of total deposits. As of March 31, 2011, total deposits decreased $9.7 million, or 0.9%, to $1.0 billion compared with total deposits as of December 31, 2010.

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



|                                           |  |                                  |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|------------------------------------------ |  | -------------------------------- | --------- |  | --------------------------- |  | ---- | -------------- |  | - | ----------- |  |  |  | ---- | -
|                                           |  | Three Months EndedMarch 31, 2011 |           |  | Year EndedDecember 31, 2010 | 
|                                           |  | AverageBalance                   |           |  | AverageRate                 |  |      | AverageBalance |  |   | AverageRate | 
|                                           |  | (dollars in thousands)           |          
|Noninterest-bearing deposits               |  | $                                | 210,885   |  |                             |  |     | %              |  | $ | 189,071     |  |  |  |     | %
|Interest checking                          |  |                                  | 162,577   |  |                             |  | 0.23 |                |  |   | 146,863     |  |  |  | 0.28 |  
|Money market and savings                   |  |                                  | 287,029   |  |                             |  | 0.44 |                |  |   | 264,227     |  |  |  | 0.67 |  
|Time deposits less than $100,000           |  |                                  | 105,669   |  |                             |  | 2.24 |                |  |   | 129,365     |  |  |  | 2.40 |  
|                                           |  |                                  |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Core deposits                              |  |                                  | 766,160   |  |                             |  | 0.52 |                |  |   | 729,526     |  |  |  | 0.72 |  
|                                           |  |                                  |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Time deposits $100,000 and greater         |  |                                  | 249,834   |  |                             |  | 1.98 |                |  |   | 250,035     |  |  |  | 2.20 |  
|Brokered deposits                          |  |                                  | 23,639    |  |                             |  | 2.35 |                |  |   | 23,836      |  |  |  | 2.58 |  
|Noninterest-bearing deposits held-for-sale |  |                                  |          |  |                             |  |     |                |  |   | 16,188      |  |  |  |     |  
|Interest-bearing deposits held-for-sale    |  |                                  |          |  |                             |  |     |                |  |   | 190,157     |  |  |  | 1.69 |  
|                                           |  |                                  |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Total deposits                             |  | $                                | 1,039,633 |  |                             |  | 0.91 | %              |  | $ | 1,209,742   |  |  |  | 1.21 | %
|                                           |  |                                  |           |  |                             |  |      |                |  |   |             |  |  |  |      |  

Borrowings, Repurchase Agreements and Junior Subordinated Debentures

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

Our borrowings and repurchase agreements were $221.6 million as of March 31, 2011. The outstanding balance as of March 31, 2011 includes $207.8 million in long term advances from FHLB and $13.8
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 increased our borrowings and repurchase agreements $1.8 million, or 0.8%, to $221.6 million as of March 31, 2011 from
$219.8 million as of December 31, 2010. The increase was due primarily to an increase in repurchase agreements with clients.



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##### Table of Contents

The following table summarizes our two issues of junior subordinated debentures outstanding
as of March 31, 2011:



|                          |  |                           |           |  |                                     |   |        |                                 |  |  |                  |   |  |                    |                      |                                      |  |                      |                   |   |        |  |  |  |           | 
|------------------------- |  | ------------------------- | --------- |  | ----------------------------------- | - | ------ | ------------------------------- |  |  | ---------------- | - |  | ------------------ | -------------------- | ------------------------------------ |  | -------------------- | ----------------- | - | ------ |  |  |  | --------- | 
|Description               |  | Issuanceand CallDates (1) |           |  | TrustPreferredSecuritiesOutstanding |   |        | InterestRate as ofMarch 31,2011 |  |  | Fixed/Adjustable |   |  | Interest RateBasis |                      | JuniorSubordinatedDebt Owedto Trusts |  |                      | FinalMaturityDate |  
|                          |  | (dollars in thousands)    |          
|Encore Statutory Trust II |  |                           | 9/17/2003 |  |                                     | $ | 5,000  |                                 |  |  | 3.26             | % |  |                    | Adjustable quarterly |                                      |  | 3 monthLIBOR + 2.95% |                   | $ | 5,155  |  |  |  | 9/24/2033 | 
|                          |  |                           |           |  |                                     |   |       
|Encore Capital Trust III  |  |                           | 4/19/2007 |  |                                     |   | 15,000 |                                 |  |  | 6.85             | % |  |                    | Fixed rate           | (2)                                  |  | 6.85%(2)             |                   |   | 15,464 |  |  |  | 4/19/2037 | 



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

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

Liquidity and Funding

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

Liquidity needs
of a financial institution can be met from either assets or liabilities. On the asset side, our primary sources of liquidity are cash and due from banks, federal funds sold, maturities of securities and scheduled repayments and maturities of loans.
On the liability side, our principal sources of liquidity are deposits, borrowed funds and the accessibility to money and capital markets. Client deposits are our largest source of funds. For the three months ended March 31, 2011, our average
deposits were $1.0 billion, or 71.2% of average total assets.

Shareholders Equity

Shareholders equity increased $1.3 million, or 0.8%, to $167.9 million as of March 31, 2011 compared with $166.6 million as of
December 31, 2010, 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 issued by us prior to May 19, 2010 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 or any amount issued on or after May 19, 2010 can be eligible for treatment as Tier 2 capital.

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



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The following table presents capital amounts and ratios for us and Encore Bank as of
March 31, 2011:



|                        |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|----------------------- |  | ---------------------- | ------- |  | --------------------------- |  | ----- | ---------------------------------------------------------------------------- |  | - | ------ |  |  | ------ | ---- | - | ----- | - | ------ |  |  |  | ----- | -
|                        |  | Actual                 |         |  | For CapitalAdequacyPurposes |  |       | To Be Categorized asWell CapitalizedUnder Prompt CorrectiveAction Provisions | 
|                        |  | Amount                 |         |  | Ratio                       |  |       | Amount                                                                       |  |   | Ratio  |  |  | Amount |      |   | Ratio |  
|                        |  | (dollars in thousands) |        
|Encore Bancshares, Inc. |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Leverage                |  | $                      | 130,426 |  |                             |  | 9.29  | %                                                                            |  | $ | 56,141 |  |  |        | 4.00 | % |       |   | N/A    |  |  |  | N/A   |  
|Tier 1 risk-based       |  |                        | 130,426 |  |                             |  | 13.05 |                                                                              |  |   | 39,985 |  |  |        | 4.00 |   |       |   | N/A    |  |  |  | N/A   |  
|Total risk-based        |  |                        | 143,015 |  |                             |  | 14.31 |                                                                              |  |   | 79,970 |  |  |        | 8.00 |   |       |   | N/A    |  |  |  | N/A   |  
|                        |  |                        |         |  |                             | 
|Encore Bank, N.A.       |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |        |  |  |  |       |  
|Leverage                |  | $                      | 120,689 |  |                             |  | 8.60  | %                                                                            |  | $ | 56,162 |  |  |        | 4.00 | % |       | $ | 70,202 |  |  |  | 5.00  | %
|Tier 1 risk-based       |  |                        | 120,689 |  |                             |  | 12.10 |                                                                              |  |   | 39,902 |  |  |        | 4.00 |   |       |   | 59,853 |  |  |  | 6.00  |  
|Total risk-based        |  |                        | 133,262 |  |                             |  | 13.36 |                                                                              |  |   | 79,803 |  |  |        | 8.00 |   |       |   | 99,754 |  |  |  | 10.00 |  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided in the Asset/Liability Management section of Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 4. Controls and Procedures

(a) Evaluation of
Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

During the first quarter of 2011, 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, 2010. There have been no material changes in our Risk Factors from those disclosed in our Form 10-K.



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

The following table presents information with respect to repurchases of common stock made by us during the three months
ended March 31, 2011. These shares were delivered to us by employees as payment for taxes on the vesting of restricted stock or exercise of stock options.

ISSUER PURCHASES OF EQUITY SECURITIES



|              |  |                                 |       |     |                             |   |       |                                                                               |  |  |                                                                             |  |  |  |   | 
|------------- |  | ------------------------------- | ----- | --- | --------------------------- | - | ----- | ----------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------- |  |  |  | - | 
|Month in 2011 |  | Total Number ofShares Purchased |       |     | Average Price Paidper Share |   |       | Total Number ofShares Purchased asPart of PubliclyAnnounced 
Plans orPrograms |  |  | Maximum Numberof Shares that MayYet Be PurchasedUnder the 
Plans orPrograms | 
|January       |  |                                 |      |     |                             | $ |      |                                                                               |  |  |                                                                            |  |  |  |  | 
|February      |  |                                 | 1,457 |     |                             |   | 11.69 |                                                                               |  |  |                                                                            |  |  |  |  | 
|March         |  |                                 | 2,013 |     |                             |   | 12.16 |                                                                               |  |  |                                                                            |  |  |  |  | 
|              |  |                                 |       |     |                             |   |       |                                                                               |  |  |                                                                             |  |  |  |   | 
|Total         |  |                                 | 3,470 | (1) |                             | $ | 11.96 |                                                                               |  |  |                                                                            |  |  |  |  | 
|              |  |                                 |       |     |                             |   |       |                                                                               |  |  |                                                                             |  |  |  |   | 



|(1) | The 3,470 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 or exercise of stock options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults Upon Senior
Securities

Not applicable

Item 4. Removed and Reserved

Item 5. Other Information

Not applicable

Item 6. Exhibits



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



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|       |  |                                                                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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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SIGNATURES

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



|            |  |  |  |                                                                                   
|----------- |  |  |  | ----------------------------------------------------------------------------------
|            |  |  |  | Encore Bancshares, Inc.                                                           
|            |  |  |  | (Registrant)                                                                      
|            |  | 
|May 9, 2011 |  |  |  | /s/ James S. DAgostino, Jr.                                                      
|(Date)      |  |  |  | James S. DAgostino, Jr., Chief Executive
Officer                                 
|            |  | 
|May 9, 2011 |  |  |  | /s/ L. Anderson Creel                                                             
|(Date)      |  |  |  | L. Anderson Creel, Chief Financial
Officer, Executive Vice President and Treasurer



37