##### 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 September 30, 2010.
|- | ---------------------------------------------------------------------------------------------------------------------------------



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

Commission file number: 001-33598





Encore
Bancshares, Inc.

(Exact name of registrant as specified in its charter)







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

(713)
787-3100

(Registrants telephone number, including area code)





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

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

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



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

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

As of
October 29, 2010, there were 11.4 million shares of common stock, $1.00 par value, issued and outstanding.









---

##### Table of Contents



ENCORE BANCSHARES, INC.

TABLE OF CONTENTS



|                              |  |          |    |                                                                                                                    |  |  |    | 
|----------------------------- |  | -------- | -- | ------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|                              |  |          |    | Page                                                                                                               | 
|Part I. FINANCIAL INFORMATION |  |          |    |                                                                                                                   
|                              |  |          |   
|                              |  | Item 1.  |    | Financial Statements                                                                                               |  |  |    | 
|                              |  |          |   
|                              |  |          |    | Consolidated Balance Sheets September 30, 2010 and December 31, 2009
(unaudited)                                  |  |  | 3  | 
|                              |  |          |   
|                              |  |          |    | Consolidated Statements of Operations Three months and nine months ended September 
30, 2010 and 2009 (unaudited) |  |  | 4  | 
|                              |  |          |   
|                              |  |          |    | Consolidated Statement of Changes in Shareholders Equity Nine months ended September 
30, 2010 (unaudited)       |  |  | 5  | 
|                              |  |          |   
|                              |  |          |    | Consolidated Statements of Cash Flows Nine months ended September 
30, 2010 and 2009 (unaudited)                  |  |  | 6  | 
|                              |  |          |   
|                              |  |          |    | Notes to Interim Consolidated Financial Statements (unaudited)                                                     |  |  | 7  | 
|                              |  |          |   
|                              |  | Item 2.  |    | Managements Discussion and Analysis of Financial Condition and Results of
Operations                              |  |  | 24 | 
|                              |  |          |   
|                              |  | Item 3.  |    | Quantitative and Qualitative Disclosures About Market Risk                                                         |  |  | 40 | 
|                              |  |          |   
|                              |  | Item 4.  |    | Controls and Procedures                                                                                            |  |  | 40 | 
|                              | 
|Part II. OTHER INFORMATION    |  |          |    |                                                                                                                   
|                              |  |          |   
|                              |  | Item 1.  |    | Legal Proceedings                                                                                                  |  |  | 40 | 
|                              |  |          |   
|                              |  | Item 1A. |    | Risk Factors                                                                                                       |  |  | 40 | 
|                              |  |          |   
|                              |  | Item 2.  |    | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |  |  | 40 | 
|                              |  |          |   
|                              |  | Item 3.  |    | Defaults Upon Senior Securities                                                                                    |  |  | 41 | 
|                              |  |          |   
|                              |  | Item 4.  |    | Reserved                                                                                                           |  |  | 41 | 
|                              |  |          |   
|                              |  | Item 5.  |    | Other Information                                                                                                  |  |  | 41 | 
|                              |  |          |   
|                              |  | Item 6.  |    | Exhibits                                                                                                           |  |  | 41 | 
|                              | 
|Signatures                    |  |          | 42 |                                                                                                                   



2



---

##### Table of Contents



Part I
 Financial Information



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

Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

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



|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                   |  | September 30,2010 |           |   | December 31,2009 |  
|ASSETS                                                                                                                                                             |  |                   |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                            |  | $                 | 16,825    |   |                  | $ | 16,796    |  
|Interest-bearing deposits in banks                                                                                                                                 |  |                   | 231,866   |   |                  |   | 172,984   |  
|Federal funds sold and other temporary investments                                                                                                                 |  |                   | 993       |   |                  |   | 7,396     |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                          |  |                   | 249,684   |   |                  |   | 197,176   |  
|Securities available-for-sale, at estimated fair value                                                                                                             |  |                   | 198,530   |   |                  |   | 140,651   |  
|Securities held-to-maturity, at amortized cost                                                                                                                     |  |                   | 55,436    |   |                  |   | 117,171   |  
|Loans held-for-sale                                                                                                                                                |  |                   | 111,505   |   |                  |   | 1,058     |  
|Loans receivable                                                                                                                                                   |  |                   | 924,589   |   |                  |   | 1,078,205 |  
|Allowance for loan losses                                                                                                                                          |  |                   | (20,967   | ) |                  |   | (26,501   | )
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Net loans receivable                                                                                                                                               |  |                   | 903,622   |   |                  |   | 1,051,704 |  
|Federal Home Loan Bank of Dallas stock, at cost                                                                                                                    |  |                   | 9,602     |   |                  |   | 9,569     |  
|Investment in real estate                                                                                                                                          |  |                   | 10,852    |   |                  |   | 14,639    |  
|Premises and equipment, net                                                                                                                                        |  |                   | 7,284     |   |                  |   | 15,484    |  
|Cash surrender value of life insurance policies                                                                                                                    |  |                   | 15,786    |   |                  |   | 15,339    |  
|Goodwill                                                                                                                                                           |  |                   | 35,799    |   |                  |   | 35,799    |  
|Other intangible assets, net                                                                                                                                       |  |                   | 4,876     |   |                  |   | 5,351     |  
|Accrued interest receivable and other assets                                                                                                                       |  |                   | 44,430    |   |                  |   | 31,414    |  
|Other assets held-for-sale                                                                                                                                         |  |                   | 3,256     |   |                  |   |          |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                   |  | $                 | 1,650,662 |   |                  | $ | 1,635,355 |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                   |  |                  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                               |  |                   |           |   |                  |   |           |  
|Deposits:                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                                |  | $                 | 205,927   |   |                  | $ | 174,102   |  
|Interest-bearing                                                                                                                                                   |  |                   | 838,125   |   |                  |   | 1,017,734 |  
|Deposits held-for-sale                                                                                                                                             |  |                   | 187,433   |   |                  |   |          |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Total deposits                                                                                                                                                     |  |                   | 1,231,485 |   |                  |   | 1,191,836 |  
|Borrowings and repurchase agreements                                                                                                                               |  |                   | 220,818   |   |                  |   | 220,612   |  
|Junior subordinated debentures                                                                                                                                     |  |                   | 20,619    |   |                  |   | 20,619    |  
|Accrued interest payable and other liabilities                                                                                                                     |  |                   | 8,028     |   |                  |   | 15,620    |  
|Other liabilities held-for-sale                                                                                                                                    |  |                   | 6         |   |                  |   |          |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                  |  |                   | 1,480,956 |   |                  |   | 1,448,687 |  
|Commitments and contingencies                                                                                                                                      |  |                   |           |   |                  |   |           |  
|Shareholders equity:                                                                                                                                              |  |                   |           |   |                  |   |           |  
|Preferred stock, $1 par value, 20,000 shares authorized; 34 shares issued at September 30, 2010 and December 31, 2009;
aggregate liquidation preference of $34,222 |  |                   | 29,368    |   |                  |   | 28,976    |  
|Common stock, $1 par value, 50,000 shares authorized; 11,421 shares at September 30, 2010 and 10,527 shares at
December 31, 2009 issued                            |  |                   | 11,421    |   |                  |   | 10,527    |  
|Additional paid-in capital                                                                                                                                         |  |                   | 121,939   |   |                  |   | 116,084   |  
|Retained earnings                                                                                                                                                  |  |                   | 6,098     |   |                  |   | 31,095    |  
|Common stock in treasury, at cost (41 shares at September 30, 2010 and 23 shares at December 31, 2009)                                                             |  |                   | (389      | ) |                  |   | (233      | )
|Accumulated other comprehensive income                                                                                                                             |  |                   | 1,269     |   |                  |   | 219       |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                         |  |                   | 169,706   |   |                  |   | 186,668   |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                   |  | $                 | 1,650,662 |   |                  | $ | 1,635,355 |  
|                                                                                                                                                                   |  |                   |           |   |                  |   |           |  

The accompanying notes are an integral part of these statements.



3



---

##### Table of Contents



Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

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



|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                    |  | Three MonthsEnded September 30, |         |   | Nine MonthsEnded September 30, |  
|                                                    |  | 2010                            |         |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|Interest income:                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Loans, including fees                               |  | $                               | 15,408  |   |                                | $ | 17,079 |      |  | $ | 46,543  |   |  | $ | 51,838 |  
|Securities                                          |  |                                 | 1,276   |   |                                |   | 2,258  |      |  |   | 4,848   |   |  |   | 6,341  |  
|Federal funds sold and other temporary investments  |  |                                 | 238     |   |                                |   | 180    |      |  |   | 687     |   |  |   | 492    |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Total interest income                               |  |                                 | 16,922  |   |                                |   | 19,517 |      |  |   | 52,078  |   |  |   | 58,671 |  
|Interest expense:                                   |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Deposits                                            |  |                                 | 3,525   |   |                                |   | 5,131  |      |  |   | 11,402  |   |  |   | 16,506 |  
|Borrowings and repurchase agreements                |  |                                 | 2,127   |   |                                |   | 2,129  |      |  |   | 6,382   |   |  |   | 6,364  |  
|Junior subordinated debentures                      |  |                                 | 301     |   |                                |   | 302    |      |  |   | 896     |   |  |   | 927    |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Total interest expense                              |  |                                 | 5,953   |   |                                |   | 7,562  |      |  |   | 18,680  |   |  |   | 23,797 |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Net interest income                                 |  |                                 | 10,969  |   |                                |   | 11,955 |      |  |   | 33,398  |   |  |   | 34,874 |  
|Provision for loan losses                           |  |                                 | 9,599   |   |                                |   | 7,685  |      |  |   | 32,572  |   |  |   | 13,651 |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Net interest income after provision for loan losses |  |                                 | 1,370   |   |                                |   | 4,270  |      |  |   | 826     |   |  |   | 21,223 |  
|Noninterest income:                                 |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Trust and investment management fees                |  |                                 | 4,639   |   |                                |   | 4,501  |      |  |   | 13,848  |   |  |   | 12,337 |  
|Mortgage banking                                    |  |                                 | 150     |   |                                |   | 110    |      |  |   | 264     |   |  |   | 612    |  
|Insurance commissions and fees                      |  |                                 | 1,524   |   |                                |   | 1,365  |      |  |   | 4,651   |   |  |   | 4,379  |  
|Net gain on sale of available-for-sale securities   |  |                                 | 261     |   |                                |   | 387    |      |  |   | 480     |   |  |   | 387    |  
|Gain on sale of branches                            |  |                                 |        |   |                                |   |       |      |  |   | 1,115   |   |  |   |       |  
|Other                                               |  |                                 | 454     |   |                                |   | 450    |      |  |   | 1,526   |   |  |   | 1,529  |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Total noninterest income                            |  |                                 | 7,028   |   |                                |   | 6,813  |      |  |   | 21,884  |   |  |   | 19,244 |  
|Noninterest expense:                                |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Compensation                                        |  |                                 | 8,503   |   |                                |   | 7,761  |      |  |   | 25,692  |   |  |   | 22,506 |  
|Occupancy                                           |  |                                 | 1,395   |   |                                |   | 1,496  |      |  |   | 4,327   |   |  |   | 4,504  |  
|Equipment                                           |  |                                 | 274     |   |                                |   | 430    |      |  |   | 967     |   |  |   | 1,312  |  
|Advertising and promotion                           |  |                                 | 146     |   |                                |   | 214    |      |  |   | 480     |   |  |   | 630    |  
|Outside data processing                             |  |                                 | 874     |   |                                |   | 797    |      |  |   | 2,641   |   |  |   | 2,344  |  
|Professional fees                                   |  |                                 | 1,325   |   |                                |   | 912    |      |  |   | 3,681   |   |  |   | 2,891  |  
|Intangible amortization                             |  |                                 | 158     |   |                                |   | 171    |      |  |   | 475     |   |  |   | 511    |  
|FDIC assessment                                     |  |                                 | 1,532   |   |                                |   | 270    |      |  |   | 2,890   |   |  |   | 1,068  |  
|Foreclosed real estate expenses, net                |  |                                 | 4,458   |   |                                |   | 183    |      |  |   | 6,984   |   |  |   | 828    |  
|Write down of assets held-for-sale                  |  |                                 | 1,012   |   |                                |   |       |      |  |   | 6,340   |   |  |   |       |  
|Other                                               |  |                                 | 1,051   |   |                                |   | 1,055  |      |  |   | 3,910   |   |  |   | 3,143  |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Total noninterest expense                           |  |                                 | 20,728  |   |                                |   | 13,289 |      |  |   | 58,387  |   |  |   | 39,737 |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Net earnings (loss) before income taxes             |  |                                 | (12,330 | ) |                                |   | (2,206 | )    |  |   | (35,677 | ) |  |   | 730    |  
|Income tax expense (benefit)                        |  |                                 | (3,904  | ) |                                |   | (453   | )    |  |   | (12,347 | ) |  |   | 527    |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Net earnings (loss)                                 |  | $                               | (8,426  | ) |                                | $ | (1,753 | )    |  | $ | (23,330 | ) |  | $ | 203    |  
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Earnings (loss) available to common shareholders    |  | $                               | (8,981  | ) |                                | $ | (2,306 | )    |  | $ | (24,997 | ) |  | $ | (1,457 | )
|                                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Earnings (loss) per common share:                   |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |        |  
|Basic                                               |  | $                               | (0.79   | ) |                                | $ | (0.22  | )    |  | $ | (2.25   | ) |  | $ | (0.14  | )
|Diluted                                             |  |                                 | (0.79   | ) |                                |   | (0.22  | )    |  |   | (2.25   | ) |  |   | (0.14  | )
|Average common shares outstanding                   |  |                                 | 11,380  |   |                                |   | 10,441 |      |  |   | 11,108  |   |  |   | 10,337 |  
|Diluted average common shares outstanding           |  |                                 | 11,380  |   |                                |   | 10,441 |      |  |   | 11,108  |   |  |   | 10,337 |  

The accompanying notes are an
integral part of these statements.



4



---

##### Table of Contents



Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

Nine Months Ended September 30, 2010

(Unaudited, amounts in thousands)



|                                                                                                                                    |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | ------------ |  | ------ | ------------------------ |  | - | ---------------- | - |  | ---------------------- | ------- | - | ----------------------------------- | - | ------- | ------------------------ |  | - | ---- | - |  | - | ----- |  |  | - | ------- | -
|                                                                                                                                    |  | PreferredStock |        |  | Common Stock |  |        | AdditionalPaid-inCapital |  |   | RetainedEarnings |   |  | CommonStock inTreasury |         |   | AccumulatedOtherComprehensiveIncome |   |         | TotalShareholdersEquity | 
|                                                                                                                                    |  | Shares         |        |  | Amount       |  |        |                          |  |   |                 
|Balance at January 1, 2010                                                                                                          |  | $              | 28,976 |  |              |  | 10,527 |                          |  | $ | 10,527           |   |  | $                      | 116,084 |   |                                     | $ | 31,095  |                          |  | $ | (233 | ) |  | $ | 219   |  |  | $ | 186,668 |  
|Stock-based compensation cost recognized in earnings                                                                                |  |                |       |  |              |  |       |                          |  |   |                 |   |  |                        | 1,016   |   |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   | 1,016   |  
|Issuance of common shares                                                                                                           |  |                |       |  |              |  | 696    |                          |  |   | 696              |   |  |                        | 5,135   |   |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   | 5,831   |  
|Issuance of restricted stock                                                                                                        |  |                |       |  |              |  | 241    |                          |  |   | 241              |   |  |                        | (241    | ) |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   |        |  
|Cancellation of restricted stock                                                                                                    |  |                |       |  |              |  | (48    | )                        |  |   | (48              | ) |  |                        | 48      |   |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   |        |  
|Exercise of stock options                                                                                                           |  |                |       |  |              |  | 5      |                          |  |   | 5                |   |  |                        | (5      | ) |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   |        |  
|Purchase of treasury stock (18 shares)                                                                                              |  |                |       |  |              |  |       |                          |  |   |                 |   |  |                        |        |   |                                     |   |        |                          |  |   | (156 | ) |  |   |      |  |  |   | (156    | )
|Excess tax expense from stock-based compensation                                                                                    |  |                |       |  |              |  |       |                          |  |   |                 |   |  |                        | (98     | ) |                                     |   |        |                          |  |   |     |   |  |   |      |  |  |   | (98     | )
|Comprehensive income (loss):                                                                                                        |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   |         |  
|Net loss                                                                                                                            |  |                |       |  |              |  |       |                          |  |   |                 |   |  |                        |        |   |                                     |   | (23,330 | )                        |  |   |     |   |  |   |      |  |  |   | (23,330 | )
|Change in net unrealized gain on securities available-for-sale, net of deferred tax expense of $558 and reclassification
adjustment |  |                |       |  |              |  |       |                          |  |   |                 |   |  |                        |        |   |                                     |   |        |                          |  |   |     |   |  |   | 1,050 |  |  |   | 1,050   |  
|                                                                                                                                    |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   |         |  
|Total comprehensive loss                                                                                                            |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   | (22,280 | )
|Dividends on preferred stock and amortization of preferred stock discount                                                           |  |                | 392    |  |              |  |       |                          |  |   |                 |   |  |                        |        |   |                                     |   | (1,667  | )                        |  |   |     |   |  |   |      |  |  |   | (1,275  | )
|                                                                                                                                    |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   |         |  
|Balance at September 30, 2010                                                                                                       |  | $              | 29,368 |  |              |  | 11,421 |                          |  | $ | 11,421           |   |  | $                      | 121,939 |   |                                     | $ | 6,098   |                          |  | $ | (389 | ) |  | $ | 1,269 |  |  | $ | 169,706 |  
|                                                                                                                                    |  |                |        |  |              |  |        |                          |  |   |                  |   |  |                        |         |   |                                     |   |         |                          |  |   |      |   |  |   |       |  |  |   |         |  

The accompanying notes are an integral part of this statement.



5



---

##### Table of Contents



Encore Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)



|                                                                                           |  |                                |          |   |      |   |          |  
|------------------------------------------------------------------------------------------ |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                           |  | Nine
MonthsEnded September 30, |         
|                                                                                           |  | 2010                           |          |   | 2009 |  
|Cash flows from operating activities:                                                      |  |                                |          |   |      |   |          |  
|Net earnings (loss)                                                                        |  | $                              | (23,330  | ) |      | $ | 203      |  
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |                                |          |   |      |   |          |  
|Provision for loan losses                                                                  |  |                                | 32,572   |   |      |   | 13,651   |  
|Write down of assets held-for-sale                                                         |  |                                | 6,340    |   |      |   |         |  
|Amortization of premiums and discounts, net                                                |  |                                | 786      |   |      |   | 605      |  
|Stock-based compensation                                                                   |  |                                | 1,016    |   |      |   | 674      |  
|Depreciation                                                                               |  |                                | 1,184    |   |      |   | 1,649    |  
|Write down of investment in real estate                                                    |  |                                | 4,830    |   |      |   | 363      |  
|Gain on sale of branches                                                                   |  |                                | (1,115   | ) |      |   |         |  
|Gain on sale of loans                                                                      |  |                                | (168     | ) |      |   | (487     | )
|Loss on sale of foreclosed real estate                                                     |  |                                | 1,226    |   |      |   | 227      |  
|Write off of premises and equipment                                                        |  |                                | 167      |   |      |   |         |  
|Realized gain on sale of available-for-sale securities, net                                |  |                                | (480     | ) |      |   | (387     | )
|Increase in mortgages held-for-sale                                                        |  |                                | (14,187  | ) |      |   | (44,177  | )
|Proceeds from sale of mortgage loans                                                       |  |                                | 15,131   |   |      |   | 44,814   |  
|Federal Home Loan Bank of Dallas stock dividends                                           |  |                                | (27      | ) |      |   | (21      | )
|(Increase) decrease in accrued interest receivable                                         |  |                                | 222      |   |      |   | (171     | )
|Increase in other assets                                                                   |  |                                | (11,407  | ) |      |   | (914     | )
|Decrease in accrued interest payable                                                       |  |                                | (40      | ) |      |   | (155     | )
|Increase (decrease) in other liabilities                                                   |  |                                | 936      |   |      |   | (1,578   | )
|                                                                                           |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                                  |  |                                | 13,656   |   |      |   | 14,296   |  
|                                                                                           |  |                                |          |   |      |   |          |  
|Cash flows from investing activities:                                                      |  |                                |          |   |      |   |          |  
|Purchases of available-for-sale securities                                                 |  |                                | (236,839 | ) |      |   | (120,497 | )
|Principal collected on available-for-sale securities                                       |  |                                | 22,432   |   |      |   | 15,355   |  
|Proceeds from sales of available-for-sale securities                                       |  |                                | 154,546  |   |      |   | 51,808   |  
|Purchases of held-to-maturity securities                                                   |  |                                | (3,165   | ) |      |   | (52,187  | )
|Principal collected on held-to-maturity securities                                         |  |                                | 39,256   |   |      |   | 30,925   |  
|Proceeds from calls of held-to-maturity securities                                         |  |                                | 26,000   |   |      |   |         |  
|Proceeds from sales of foreclosed real estate                                              |  |                                | 8,840    |   |      |   | 3,324    |  
|Net cash paid to HomeBanc from sale of branches                                            |  |                                | (49,364  | ) |      |   |         |  
|Cash paid for contingency payment related to prior acquisition                             |  |                                | (2,095   | ) |      |   |         |  
|Net (increase) decrease in loans receivable                                                |  |                                | (9,126   | ) |      |   | 92,969   |  
|Purchases of Federal Home Loan Bank stock                                                  |  |                                | (6       | ) |      |   | (10      | )
|Purchases of premises and equipment                                                        |  |                                | (213     | ) |      |   | (240     | )
|                                                                                           |  |                                |          |   |      |   |          |  
|Net cash provided (used) by investing activities                                           |  |                                | (49,734  | ) |      |   | 21,447   |  
|                                                                                           |  |                                |          |   |      |   |          |  
|Cash flows from financing activities:                                                      |  |                                |          |   |      |   |          |  
|Net increase in deposits                                                                   |  |                                | 90,079   |   |      |   | 64,036   |  
|Proceeds from long term Federal Home Loan Bank of Dallas borrowings                        |  |                                | 52,500   |   |      |   |         |  
|Repayment of long term Federal Home Loan Bank of Dallas borrowings                         |  |                                | (55,130  | ) |      |   | (35      | )
|Increase (decrease) in repurchase agreements                                               |  |                                | 2,568    |   |      |   | (50,437  | )
|Payment on notes payable                                                                   |  |                                |         |   |      |   | (62      | )
|Purchase of treasury stock                                                                 |  |                                | (156     | ) |      |   | (25      | )
|Preferred dividends paid                                                                   |  |                                | (1,275   | ) |      |   | (1,181   | )
|                                                                                           |  |                                |          |   |      |   |          |  
|Net cash provided by financing activities                                                  |  |                                | 88,586   |   |      |   | 12,296   |  
|                                                                                           |  |                                |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                                  |  |                                | 52,508   |   |      |   | 48,039   |  
|Cash and cash equivalents at beginning of period                                           |  |                                | 197,176  |   |      |   | 118,052  |  
|                                                                                           |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                 |  | $                              | 249,684  |   |      | $ | 166,091  |  
|                                                                                           |  |                                |          |   |      |   |          |  
|Supplementary cash flows information:                                                      |  |                                |          |   |      |   |          |  
|Interest paid on deposits and borrowed funds                                               |  | $                              | 18,720   |   |      | $ | 23,952   |  
|Income taxes paid                                                                          |  |                                |         |   |      |   | 1,030    |  
|Noncash investing and financing activities:                                                |  |                                |          |   |      |   |          |  
|Real estate acquired in satisfaction of loans                                              |  |                                | 9,608    |   |      |   | 8,085    |  
|Issuance of common stock for acquisition                                                   |  |                                | 5,831    |   |      |   |         |  

The accompanying notes are an
integral part of these statements.



6



---

##### Table of Contents



Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Encore Bancshares, Inc., Encore Bank, Linscomb &
Williams, Inc. (Linscomb & Williams), and Town & Country Insurance Agency, Inc. (Town & Country). We have made all adjustments that, in our opinion, are necessary for a fair presentation of results of the interim periods,
and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated. These unaudited consolidated financial statements and the notes thereto should be read in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2009. The consolidated balance sheet at December 31, 2009 was derived from audited financial statements, but does not include all disclosures required by accounting principles
generally accepted in the United States of America (US GAAP).

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

Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or any other period.

Nature of Operations

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

We provide a variety of financial services through our fifteen private client offices located in the greater Houston
area and southwest Florida, and five wealth management offices and three insurance offices in Texas. Two private client offices in Florida were sold in the second quarter of 2010 and the remaining four client offices are expected to be sold in the
fourth quarter of 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, 2010, we adopted the following updates to the FASB Codification:

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



7



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





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

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

In February 2010, the FASB issued ASU 2010-09 Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements.ASU 2010-09 provides amendments to ASC 855-10 requiring an entity to evaluate subsequent events through the date that the financial statements are issued. In addition, ASU 2010-09 no longer
requires a public entity to disclose the date through which subsequent events have been evaluated. ASC 855 Subsequent Eventsaddressed events which occur after the balance sheet date but before the issuance of financial statements. Under ASC
855, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that
did not exist at the balance sheet date. The Company adopted ASU 2010-09 and ASC 855 and has included the required disclosures.

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

Pending Accounting Pronouncements

FASB ASU 2010-20, Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires additional disclosures that facilitate
financial statement users evaluation of the nature of credit risk inherent in the entitys portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and
reasons for those changes in the allowance for credit losses. The ASU makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing
receivables at the end of the reporting period by class of financing receivables, the aging of past due financing receivables at the end of the reporting period by class of financing receivables, and the nature and extent of troubled debt
restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses. These disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending
on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. We do not expect ASU 2010-20 to have a
material effect on our consolidated financial statements other than the new disclosures required by the ASU.

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.



8



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





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



|                                                                                |  |                                  |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------- |  | -------------------------------- | ---- | - | ------------------------------ | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                |  | Three MonthsEnded September 
30, |      |   | Nine
MonthsEnded September 30, |  
|                                                                                |  | 2010                             |      |   | 2009                           |   |      | 2010 |  |   | 2009  |  
|Unrealized holding gains on available-for-sale securities arising during period |  | $                                | 188  |   |                                | $ | 389  |      |  | $ | 1,128 |   |  | $ | 1,429 |  
|Reclassification adjustment for gains included in income                        |  |                                  | 261  |   |                                |   | 387  |      |  |   | 480   |   |  |   | 387   |  
|                                                                                |  |                                  |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Net pre-tax gain recognized in other comprehensive income                       |  |                                  | 449  |   |                                |   | 776  |      |  |   | 1,608 |   |  |   | 1,816 |  
|Tax expense                                                                     |  |                                  | (133 | ) |                                |   | (272 | )    |  |   | (558  | ) |  |   | (634  | )
|                                                                                |  |                                  |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Net-of-tax impact on comprehensive income                                       |  | $                                | 316  |   |                                | $ | 504  |      |  | $ | 1,050 |   |  | $ | 1,182 |  
|                                                                                |  |                                  |      |   |                                |   |      |      |  |   |       |   |  |   |       |  

Florida Branch Transactions

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

Under the terms of the first agreement, based on data as of
September 30, 2010, NBSWF is to assume approximately $187.4 million of deposits associated with our four private client offices located in Naples, Ft. Myers and Sun City Center, Florida. NBSWF is also expected to purchase approximately $66.3
million of loans as well as other assets, including premises and equipment. The amount of loans to be purchased is subject to decrease by the amount of any such loans that become adversely classified or downgraded to substandard or below. The
purchase and assumption is subject to regulatory approval, the closing of the purchase of NBSWF by Ovation Holdings, customary closing conditions and is expected to close during the fourth quarter 2010, although delays may occur.

The second agreement was with HomeBanc National Association (HomeBanc), headquartered in Lake Mary, Florida. Pursuant to this agreement,
in May 2010, HomeBanc assumed approximately $50.5 million of deposits and certain assets associated with our two private client offices in Clearwater and Belleair Bluffs, Florida. We recorded a gain on sale of branches of $1.1 million.

The deposits and loans expected to be acquired by NBSWF represent approximately 15.2% and 6.4% of our total deposits and loans at
September 30, 2010, and are reflected on our consolidated balance sheet as assets and liabilities held-for-sale as of September 30, 2010. We recorded a write down of $4.3 million ($1.8 million charge to the allowance for loan losses and
$2.5 million write down of assets held-for-sale) in the first quarter of 2010 to adjust the assets held-for-sale to their agreed purchase price. The gain on the sale of the deposits with respect to NBSWF will be recognized when the transaction is
completed.

Subsequent Event

In October 2010, Encore Bank sold $25,314 of Florida nonperforming and problem loans. These loans were written down to their purchase price in the third quarter of 2010, resulting in a charge of $8,509,
and are reflected on our September 30, 2010 consolidated balance sheet as loans held-for-sale.



9



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

(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 |  
|September 30, 2010                                   |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Available-for-sale:                                  |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 116,614 |  |                      | $ | 379   |                       |  | $ |          |   |  | $ | 116,993 | 
|Securities of U.S. states and political subdivisions |  |               | 5,901   |  |                      |   | 23    |                       |  |   | (13       | ) |  |   | 5,911   | 
|Mortgage-backed securities                           |  |               | 51,878  |  |                      |   | 1,430 |                       |  |   | (41       | ) |  |   | 53,267  | 
|Corporate securities                                 |  |               | 13,965  |  |                      |   |      |                       |  |   | (38       | ) |  |   | 13,927  | 
|Other securities                                     |  |               | 5,633   |  |                      |   | 26    |                       |  |   |          |   |  |   | 5,659   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total                                                |  |               | 193,991 |  |                      |   | 1,858 |                       |  |   | (92       | ) |  |   | 195,757 | 
|Marketable equity securities                         |  |               | 2,531   |  |                      |   | 242   |                       |  |   |          |   |  |   | 2,773   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total available-for-sale securities                  |  | $             | 196,522 |  |                      | $ | 2,100 |                       |  | $ | (92       | ) |  | $ | 198,530 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Held-to-maturity:                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 5,000   |  |                      | $ | 15    |                       |  | $ |          |   |  | $ | 5,015   | 
|Securities of U.S. states and political subdivisions |  |               | 14,596  |  |                      |   | 621   |                       |  |   | (25       | ) |  |   | 15,192  | 
|Mortgage-backed securities                           |  |               | 18,684  |  |                      |   | 765   |                       |  |   | (5        | ) |  |   | 19,444  | 
|Corporate securities                                 |  |               | 17,156  |  |                      |   | 2,115 |                       |  |   |          |   |  |   | 19,271  | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total held-to-maturity securities                    |  | $             | 55,436  |  |                      | $ | 3,516 |                       |  | $ | (30       | ) |  | $ | 58,922  | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|                                                     |  |               |         | 
|December 31, 2009                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Available-for-sale:                                  |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 87,258  |  |                      | $ | 117   |                       |  | $ | (554      | ) |  | $ | 86,821  | 
|Securities of U.S. states and political subdivisions |  |               | 646     |  |                      |   |      |                       |  |   | (31       | ) |  |   | 615     | 
|Mortgage-backed securities                           |  |               | 45,275  |  |                      |   | 926   |                       |  |   | (64       | ) |  |   | 46,137  | 
|Other securities                                     |  |               | 4,410   |  |                      |   | 12    |                       |  |   | (36       | ) |  |   | 4,386   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total                                                |  |               | 137,589 |  |                      |   | 1,055 |                       |  |   | (685      | ) |  |   | 137,959 | 
|Marketable equity securities                         |  |               | 2,523   |  |                      |   | 169   |                       |  |   |          |   |  |   | 2,692   | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total available-for-sale securities                  |  | $             | 140,112 |  |                      | $ | 1,224 |                       |  | $ | (685      | ) |  | $ | 140,651 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Held-to-maturity:                                    |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|U.S. Government securities                           |  | $             | 29,918  |  |                      | $ | 57    |                       |  | $ | (16       | ) |  | $ | 29,959  | 
|Securities of U.S. states and political subdivisions |  |               | 11,436  |  |                      |   | 289   |                       |  |   | (82       | ) |  |   | 11,643  | 
|Mortgage-backed securities                           |  |               | 57,868  |  |                      |   | 759   |                       |  |   | (13       | ) |  |   | 58,614  | 
|Corporate securities                                 |  |               | 17,949  |  |                      |   | 1,725 |                       |  |   |          |   |  |   | 19,674  | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 
|Total held-to-maturity securities                    |  | $             | 117,171 |  |                      | $ | 2,830 |                       |  | $ | (111      | ) |  | $ | 119,890 | 
|                                                     |  |               |         |  |                      |   |       |                       |  |   |           |   |  |   |         | 



10



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





We own certain debt
securities with unrealized losses as of September 30, 2010 and December 31, 2009. These securities, with unrealized losses segregated by length of impairment at period end, were as follows:



|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|---------------------------------------------------- |  | ------------------- | - |  | ---------- | - | ------ | ---------------- |  | - | ---- | -
|Description of Securities                            |  | Number ofSecurities |   |  | Fair Value |   |        | UnrealizedLosses | 
|                                                     |  |                     |  
|September 30, 2010                                   |  |                     |   |  |            |   |        |                  |  |   |      |  
|Less than 12 months                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Available-for-sale:                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Securities of U.S. states and political subdivisions |  |                     | 1 |  |            | $ | 1,074  |                  |  | $ | (13  | )
|Mortgage-backed securities                           |  |                     | 2 |  |            |   | 2,831  |                  |  |   | (41  | )
|Corporate securities                                 |  |                     | 3 |  |            |   | 8,927  |                  |  |   | (38  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|Total available-for-sale securities                  |  |                     | 6 |  |            | $ | 12,832 |                  |  | $ | (92  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|Held-to-maturity:                                    |  |                     |   |  |            |   |        |                  |  |   |      |  
|Securities of U.S. states and political subdivisions |  |                     | 1 |  |            | $ | 1,070  |                  |  | $ | (25  | )
|Mortgage-backed securities                           |  |                     | 3 |  |            |   | 387    |                  |  |   | (2   | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|Total held-to-maturity securities                    |  |                     | 4 |  |            | $ | 1,457  |                  |  | $ | (27  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|More than 12 months                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Held-to-maturity:                                    |  |                     |   |  |            |   |        |                  |  |   |      |  
|Mortgage-backed securities                           |  |                     | 3 |  |            | $ | 545    |                  |  | $ | (3   | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|December 31, 2009                                    |  |                     |   |  |            |   |        |                  |  |   |      |  
|Less than 12 months                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Available-for-sale:                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|U.S. Government securities                           |  |                     | 6 |  |            | $ | 29,054 |                  |  | $ | (554 | )
|Securities of U.S. states and political subdivisions |  |                     | 1 |  |            |   | 615    |                  |  |   | (31  | )
|Mortgage-backed securities                           |  |                     | 2 |  |            |   | 8,353  |                  |  |   | (64  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|Total available-for-sale securities                  |  |                     | 9 |  |            | $ | 38,022 |                  |  | $ | (649 | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|Held-to-maturity:                                    |  |                     |   |  |            |   |        |                  |  |   |      |  
|U.S. Government securities                           |  |                     | 1 |  |            | $ | 4,966  |                  |  | $ | (16  | )
|Securities of U.S. states and political subdivisions |  |                     | 5 |  |            |   | 1,910  |                  |  |   | (82  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|Total held-to-maturity securities                    |  |                     | 6 |  |            | $ | 6,876  |                  |  | $ | (98  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|More than 12 months                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Available-for-sale:                                  |  |                     |   |  |            |   |        |                  |  |   |      |  
|Other securities                                     |  |                     | 2 |  |            | $ | 498    |                  |  | $ | (36  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  
|                                                     |  |                     |  
|Held-to-maturity:                                    |  |                     |   |  |            |   |        |                  |  |   |      |  
|Mortgage-backed securities                           |  |                     | 5 |  |            | $ | 789    |                  |  | $ | (13  | )
|                                                     |  |                     |   |  |            |   |        |                  |  |   |      |  

We do not believe any of the above securities are impaired due to credit quality. These securities have
unrealized losses primarily due to changes in market interest rates. We expect to recover the entire amortized cost of these securities since we do not intend to sell the securities. Additionally, it is not more likely than not that we will be
required to sell these securities before recovery of our cost basis. Accordingly, as of September 30, 2010 and December 31, 2009, we believe the impairments detailed in the table are temporary and no impairment loss has been recorded in
the accompanying consolidated statements of operations.

The following table shows the amortized cost and estimated fair value
of securities by contractual maturity at September 30, 2010. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment schedules.
Mortgage-backed securities and equity securities are shown separately since they are not due at a single maturity date.



11



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





|                                      |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |        | 
|------------------------------------- |  | ---------------------------- | ------- |  | -------------------------- | - | ------- | ------------- |  | - | --------- |  |  | - | ------ | 
|                                      |  | Available-for-SaleSecurities |         |  | Held-to-MaturitySecurities |  
|                                      |  | AmortizedCost                |         |  | FairValue                  |   |         | AmortizedCost |  |   | FairValue | 
|Within one year                       |  | $                            | 3,000   |  |                            | $ | 3,007   |               |  | $ | 4,953     |  |  | $ | 5,056  | 
|Over one year through five years      |  |                              | 105,909 |  |                            |   | 106,203 |               |  |   | 12,566    |  |  |   | 13,852 | 
|After five years through ten years    |  |                              | 19,001  |  |                            |   | 18,977  |               |  |   | 4,637     |  |  |   | 5,378  | 
|Over ten years                        |  |                              | 8,917   |  |                            |   | 8,996   |               |  |   | 14,596    |  |  |   | 15,192 | 
|                                      |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |        | 
|Total                                 |  |                              | 136,827 |  |                            |   | 137,183 |               |  |   | 36,752    |  |  |   | 39,478 | 
|Mortgage-backed and equity securities |  |                              | 59,695  |  |                            |   | 61,347  |               |  |   | 18,684    |  |  |   | 19,444 | 
|                                      |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |        | 
|Total securities                      |  | $                            | 196,522 |  |                            | $ | 198,530 |               |  | $ | 55,436    |  |  | $ | 58,922 | 
|                                      |  |                              |         |  |                            |   |         |               |  |   |           |  |  |   |        | 

Mortgage-backed securities consist of federal agency pass-through securities and have a weighted average
yield of 2.66% and 3.31% at September 30, 2010 and December 31, 2009. As of September 30, 2010, the mortgage-backed securities have contractual maturities from less than a year to 2040. Accrued interest receivable on mortgage-backed
securities was $199 and $350 at September 30, 2010 and December 31, 2009.

At September 30, 2010 and
December 31, 2009, securities with a carrying value of $79,372 and $47,954 were pledged as collateral for repurchase agreements, public funds, trust deposits, and for other purposes, as required or permitted by law.

Gross realized gains were $544 and $577 and gross realized losses were $64 and $190 on sales of available-for-sale securities for the nine
months ended September 30, 2010 and 2009.

Mortgage-backed securities previously classified as available-for-sale were
transferred to held-to-maturity during 2004. The amortized cost and fair value at the time of transfer were $127,049 and $128,782. The securities were transferred at fair value and the unrealized gain net of tax was recorded in accumulated other
comprehensive income. Amortization of unrealized gain was $138 and $286 for the nine months ended September 30, 2010 and 2009.



12



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





NOTE C  LOANS RECEIVABLE

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



|                                    |  |                   |           |  |                  |   |           | 
|----------------------------------- |  | ----------------- | --------- |  | ---------------- | - | --------- | 
|                                    |  | September 30,2010 |           |  | December 31,2009 |  
|Commercial:                         |  |                   |           |  |                  |   |           | 
|Commercial                          |  | $                 | 138,594   |  |                  | $ | 115,431   | 
|Commercial real estate              |  |                   | 154,476   |  |                  |   | 259,480   | 
|Real estate construction            |  |                   | 54,140    |  |                  |   | 87,008    | 
|                                    |  |                   |           |  |                  |   |           | 
|Total commercial                    |  |                   | 347,210   |  |                  |   | 461,919   | 
|                                    |  |                  
|Consumer:                           |  |                   |           |  |                  |   |           | 
|Residential real estate first lien  |  |                   | 207,386   |  |                  |   | 222,337   | 
|Residential real estate second lien |  |                   | 280,245   |  |                  |   | 291,433   | 
|Home equity lines                   |  |                   | 63,983    |  |                  |   | 74,356    | 
|Consumer installment - indirect     |  |                   | 5,520     |  |                  |   | 8,372     | 
|Consumer other                      |  |                   | 20,245    |  |                  |   | 19,788    | 
|                                    |  |                   |           |  |                  |   |           | 
|Total consumer                      |  |                   | 577,379   |  |                  |   | 616,286   | 
|                                    |  |                   |           |  |                  |   |           | 
|Loans receivable                    |  |                   | 924,589   |  |                  |   | 1,078,205 | 
|Loans held-for-sale                 |  |                   | 111,505   |  |                  |   | 1,058     | 
|                                    |  |                   |           |  |                  |   |           | 
|Total loans                         |  | $                 | 1,036,094 |  |                  | $ | 1,079,263 | 
|                                    |  |                   |           |  |                  |   |           | 

Included in total loans is $2,691 and $3,123 of net deferred loan origination costs and unamortized premium
and discount at September 30, 2010 and December 31, 2009.

Changes in the allowance for loan losses were as follows:



|                                           |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------ |  | -------------------------------- | ------- | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                           |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                           |  | 2010                             |         |   | 2009                            |   |        | 2010 |  |   | 2009    |  
|Balance at beginning of period             |  | $                                | 26,675  |   |                                 | $ | 25,214 |      |  | $ | 26,501  |   |  | $ | 25,105  |  
|Provision for loan losses                  |  |                                  | 9,599   |   |                                 |   | 7,685  |      |  |   | 32,572  |   |  |   | 13,651  |  
|Loans charged-off                          |  |                                  | (15,735 | ) |                                 |   | (6,028 | )    |  |   | (39,734 | ) |  |   | (12,264 | )
|Recoveries of loans previously charged-off |  |                                  | 428     |   |                                 |   | 704    |      |  |   | 1,628   |   |  |   | 1,083   |  
|                                           |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Balance at end of period                   |  | $                                | 20,967  |   |                                 | $ | 27,575 |      |  | $ | 20,967  |   |  | $ | 27,575  |  
|                                           |  |                                  |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  



13



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





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



|                                                           |  |                   |        |  |                  |   |        | 
|---------------------------------------------------------- |  | ----------------- | ------ |  | ---------------- | - | ------ | 
|                                                           |  | September 30,2010 |        |  | December 31,2009 |  
|Impaired loans on nonaccrual without a valuation allowance |  | $                 | 19,476 |  |                  | $ | 20,032 | 
|Impaired loans on nonaccrual with a valuation allowance    |  |                   | 5,265  |  |                  |   | 14,591 | 
|Impaired loans still accruing with a valuation allowance   |  |                   | 509    |  |                  |   | 530    | 
|                                                           |  |                   |        |  |                  |   |        | 
|Total impaired loans (1)                                   |  | $                 | 25,250 |  |                  | $ | 35,153 | 
|                                                           |  |                   |        |  |                  |   |        | 
|Valuation allowance related to impaired loans              |  | $                 | 1,750  |  |                  | $ | 6,264  | 
|                                                           |  |                   |        |  |                  |   |        | 
|Total nonaccrual loans                                     |  | $                 | 51,696 |  |                  | $ | 35,988 | 
|                                                           |  |                   |        |  |                  |   |        | 
|Total accruing loans past due 90 days or more              |  | $                 |       |  |                  | $ | 1,489  | 
|                                                           |  |                   |        |  |                  |   |        | 
|Restructured loans still accruing                          |  | $                 | 2,570  |  |                  | $ | 530    | 
|                                                           |  |                   |        |  |                  |   |        | 



|(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.

In October 2010, we sold $19,803 of Florida nonaccrual loans, which are included in total nonaccrual loans above. These loans are not
included in impaired loans as they were recorded at fair value as of September 30, 2010.

NOTE D  BORROWINGS

Subject to certain limitations, we may borrow funds from the FHLB in the form of advances. During the nine months ended September 30,
2010, we refinanced approximately $52,500 of FHLB advances which were treated as exchanges of debt. As part of those transactions, we incurred prepayment penalties of $2,594, which were capitalized as part of the new advances and are being amortized
over the life of the new advances.

Our credit availability from the FHLB is based on our financial and operating condition and
the amount of collateral available to the FHLB. These borrowings were collateralized by a blanket lien on our mortgage-related assets. Following is a summary of outstanding borrowings from the FHLB at September 30, 2010:



|       |         |  |                    |  |             |                     |  |                     |  |         
|------ | ------- |  | ------------------ |  | ----------- | ------------------- |  | ------------------- |  | --------
|Amount |         |  | InterestRate
Range |  |             | Maturity
Date Range |  | Call
Date          
|$      | 59,500  |  |                    |  | 3.54  4.37 | %                   |  | 01/11/13  11/26/13 |  | None    
|       | 28,666  |  |                    |  | 2.43  2.75 |                     |  | 01/08/14  05/19/14 |  | None    
|       | 19,593  |  |                    |  | 2.84  3.18 |                     |  | 01/08/15  05/18/15 |  | None    
|       | 2,902   |  |                    |  | 4.79        |                     |  | 08/03/15            |  | None    
|       | 1,915   |  |                    |  | 3.54        |                     |  | 01/08/16            |  | None    
|       | 10,000  |  |                    |  | 4.14        |                     |  | 12/07/16            |  | 12/07/10
|       | 10,000  |  |                    |  | 4.23        |                     |  | 04/05/17            |  | 01/05/11
|       | 15,000  |  |                    |  | 4.17        |                     |  | 04/05/17            |  | 01/05/11
|       | 10,000  |  |                    |  | 4.52        |                     |  | 05/09/17            |  | 11/09/10
|       | 50,000  |  |                    |  | 4.15        |                     |  | 08/01/17            |  | 02/01/11
|       |         |  |                    |  |             |                     |  |                     |  |         
|$      | 207,576 |  |                    |  |             |                     |  |                     |  |         
|       |         |  |                    |  |             |                     |  |                     |  |         



14



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





Each advance is
payable per terms of the agreement. We were eligible to borrow up to an additional $203,941 at September 30, 2010.

NOTE E 
REGULATORY MATTERS

We and Encore Bank are subject to various regulatory capital adequacy requirements administered by the
Board of Governors of the Federal Reserve System (Federal Reserve) and the Office of the Comptroller of the Currency (OCC). Actual and minimum Tier 1 leverage, Tier 1 risk-based and total risk-based ratios as of September 30, 2010 are set forth
in the following table:



|                                      |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|------------------------------------- |  | ------ | ------- |  | ---------------------------- |  | ----- | ----------------------------------------------------------------------------- |  | - | ------ |  |  | ------ | ---- | - | ----- | - | ------- |  |  |  | ----- | -
|                                      |  | Actual |         |  | For CapitalAdequacy Purposes |  |       | To Be Categorized asWell 
Capitalized UnderPrompt CorrectiveAction Provisions | 
|                                      |  | Amount |         |  | Ratio                        |  |       | Amount                                                                        |  |   | Ratio  |  |  | Amount |      |   | Ratio |  
|September 30, 2010                    |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Tier 1 capital (to average assets)    |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Tier 1 (leverage)                     |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 148,743 |  |                              |  | 9.18  | %                                                                             |  | $ | 64,807 |  |  |        | 4.00 | % |       |   | N/A     |  |  |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 137,517 |  |                              |  | 8.49  |                                                                               |  |   | 64,791 |  |  |        | 4.00 |   |       | $ | 80,989  |  |  |  | 5.00  | %
|Tier 1 capital (to risk-based assets) |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 148,743 |  |                              |  | 13.53 | %                                                                             |  | $ | 43,984 |  |  |        | 4.00 | % |       |   | N/A     |  |  |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 137,517 |  |                              |  | 12.53 |                                                                               |  |   | 43,886 |  |  |        | 4.00 |   |       | $ | 65,829  |  |  |  | 6.00  | %
|Total capital (to risk-based assets)  |  |        |         |  |                              |  |       |                                                                               |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Encore Bancshares, Inc.               |  | $      | 162,589 |  |                              |  | 14.79 | %                                                                             |  | $ | 87,968 |  |  |        | 8.00 | % |       |   | N/A     |  |  |  | N/A   |  
|Encore Bank, N.A.                     |  |        | 151,342 |  |                              |  | 13.79 |                                                                               |  |   | 87,771 |  |  |        | 8.00 |   |       | $ | 109,714 |  |  |  | 10.00 | %

NOTE F  COMMON STOCK

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

NOTE G  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.



15



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





NOTE H  EARNINGS (LOSS)
PER COMMON SHARE

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



|                                                                                           |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                                           |  | Three MonthsEnded September 
30, |        |   | Nine MonthsEnded September 
30, |  
|                                                                                           |  | 2010                             |        |   | 2009                            |   |        | 2010 |  |   | 2009    |  
|Basic:                                                                                     |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Earnings (loss) available to common shareholders                                           |  | $                                | (8,981 | ) |                                 | $ | (2,306 | )    |  | $ | (24,997 | ) |  | $ | (1,457 | )
|Average common shares outstanding, including nonvested restricted stock                    |  |                                  | 11,380 |   |                                 |   | 10,441 |      |  |   | 11,108  |   |  |   | 10,337 |  
|Per Share                                                                                  |  | $                                | (0.79  | ) |                                 | $ | (0.22  | )    |  | $ | (2.25   | ) |  | $ | (0.14  | )
|Diluted:                                                                                   |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Average common shares outstanding                                                          |  |                                  | 11,380 |   |                                 |   | 10,441 |      |  |   | 11,108  |   |  |   | 10,337 |  
|Add: Net effect of the assumed exercise of stock options                                   |  |                                  |       |   |                                 |   |       |      |  |   |        |   |  |   |       |  
|                                                                                           |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Diluted average common shares outstanding                                                  |  |                                  | 11,380 |   |                                 |   | 10,441 |      |  |   | 11,108  |   |  |   | 10,337 |  
|Per Share                                                                                  |  | $                                | (0.79  | ) |                                 | $ | (0.22  | )    |  | $ | (2.25   | ) |  | $ | (0.14  | )
|Anti-dilutive stock options and warrants not included in treasury stock method computation |  |                                  | 1,321  |   |                                 |   | 1,347  |      |  |   | 1,333   |   |  |   | 1,353  |  
|Preferred dividends deducted from net earnings (loss)                                      |  |                                  | 555    |   |                                 |   | 553    |      |  |   | 1,667   |   |  |   | 1,660  |  

No dividends have been
declared on our common stock.

NOTE I  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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





The tables below
present the balances of assets measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009:



|                                                     |  |                    |         |  |         |   |         |         |  |   |        | 
|---------------------------------------------------- |  | ------------------ | ------- |  | ------- | - | ------- | ------- |  | - | ------ | 
|                                                     |  | September 30, 2010 |        
|Description                                          |  | Total              |         |  | Level 1 |   |         | Level 2 | 
|U.S. Government securities                           |  | $                  | 116,993 |  |         | $ | 109,259 |         |  | $ | 7,734  | 
|Securities of U.S. states and political subdivisions |  |                    | 5,911   |  |         |   |        |         |  |   | 5,911  | 
|Mortgage-backed securities                           |  |                    | 53,267  |  |         |   |        |         |  |   | 53,267 | 
|Corporate securities                                 |  |                    | 13,927  |  |         |   |        |         |  |   | 13,927 | 
|Other securities                                     |  |                    | 8,432   |  |         |   | 3,364   |         |  |   | 5,068  | 
|                                                     |  |                    |         |  |         |   |         |         |  |   |        | 
|Total available-for-sale securities                  |  | $                  | 198,530 |  |         | $ | 112,623 |         |  | $ | 85,907 | 
|                                                     |  |                    |         |  |         |   |         |         |  |   |        | 
|                                                     | 
|                                                     |  | December 31, 2009  |        
|Description                                          |  | Total              |         |  | Level 1 |   |         | Level 2 | 
|U.S. Government securities (1)                       |  | $                  | 86,821  |  |         | $ | 86,821  |         |  | $ |       | 
|Securities of U.S. states and political subdivisions |  |                    | 615     |  |         |   |        |         |  |   | 615    | 
|Mortgage-backed securities                           |  |                    | 46,137  |  |         |   |        |         |  |   | 46,137 | 
|Other securities (2)                                 |  |                    | 3,395   |  |         |   | 3,395   |         |  |   |       | 
|                                                     |  |                    |         |  |         |   |         |         |  |   |        | 
|Total available-for-sale securities                  |  | $                  | 136,968 |  |         | $ | 90,216  |         |  | $ | 46,752 | 
|                                                     |  |                    |         |  |         |   |         |         |  |   |        | 



|(1) | In the first quarter of 2010, we determined that $52,930 of U.S. Government securities had been misclassified as Level 1 as of December 31, 2009 and should have
been reported as Level 2 since these securities were priced based on similar securities in an inactive market. We had originally reported these securities in Level 1 with Treasury securities which trade in more active markets. Therefore, we have
corrected the classifications as of September 30, 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

At September 30, 2010, the fair value of our investment in available-for-sale Level 2 U.S. Government securities was $7,734. The investments were comprised of $5,000 fixed-rate U.S. agency securities
with a weighted average coupon rate of 0.7% and a weighted average life of 1.9 years and $2,734 variable-rate U.S. agency securities with a weighted average coupon rate of 3.3% and a weighted average life of 5.1 years. To estimate their value, we
used a third party broker to value the securities using standard market matrix pricing for similar securities.

At
September 30, 2010, the fair value of our investment in available-for-sale Level 2 securities of U.S. states and political subdivisions was $5,911. The investments were comprised of securities issued by municipal entities in Texas, with a
weighted average coupon rate of 5.1% and a weighted average life of 14.2 years. To estimate their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.

At September 30, 2010, the fair value of our investment in available-for-sale Level 2 mortgage-backed securities was $53,267. These
investments were comprised of $20,250 fixed-rate GNMA and FNMA backed securities with a weighted average coupon rate of 4.3% and a weighted average life of 2.8 years and $33,017 variable-rate GNMA and FNMA backed securities with a weighted average
coupon rate of 2.7% and a weighted average life of 3.9 years. The underlying loans for these securities are residential mortgages located in various states across the country, with no significant concentration in any particular state. To estimate
their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.

At September 30, 2010, the fair value of our investment in available-for-sale Level 2 corporate securities was $13,927. The
investments were comprised of $8,927 fixed-rate corporate bonds with a weighted average coupon rate of 5.7% and a weighted average life of 9.9 years and $5,000 variable-rate corporate bonds with a weighted average coupon rate of 6.0% and a weighted
average life of 9.9 years. To estimate their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.



17



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





At
September 30, 2010, the fair value of our investment in available-for-sale Level 2 other securities was $5,068. 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 4.5 years. To estimate their value, we used a third party broker to value the securities using standard market matrix pricing for similar securities.

For assets measured at fair value on a nonrecurring basis during 2010 that were still held on the balance sheet at September 30, 2010, the following table provides the level of valuation assumptions
used to determine the amount of adjustment and the carrying value of the related individual assets at period end:



|                                |  |       |         |  |         |   |        |         |  |   |                                                    |  |  |   |        | 
|------------------------------- |  | ----- | ------- |  | ------- | - | ------ | ------- |  | - | -------------------------------------------------- |  |  | - | ------ | 
|Description                     |  | Total |         |  | Level 2 |   |        | Level 3 |  |   | Losses for theNine Months 
EndedSeptember 30, 2010 | 
|Loans held-for-sale             |  | $     | 103,292 |  |         | $ | 91,569 |         |  | $ | 11,723                                             |  |  | $ | 15,486 | 
|Loans                           |  |       | 16,949  |  |         |   |       |         |  |   | 16,949                                             |  |  |   | 7,141  | 
|Investment in real estate       |  |       | 10,852  |  |         |   |       |         |  |   | 10,852                                             |  |  |   | 4,692  | 
|Long-lived assets held-for-sale |  |       | 3,010   |  |         |   |       |         |  |   | 3,010                                              |  |  |   | 2,535  | 
|                                |  |       |         |  |         |   |        |         |  |   |                                                    |  |  |   |        | 
|Total                           |  | $     | 134,103 |  |         | $ | 91,569 |         |  | $ | 42,534                                             |  |  | $ | 29,854 | 
|                                |  |       |         |  |         |   |        |         |  |   |                                                    |  |  |   |        | 

During the nine months ended September 30, 2010, we reclassified certain loans as held-for-sale in
connection with the anticipated sale of our banking operations in Florida. The loans were written down to their expected purchase price of $66,255, resulting in an impairment charge of $1,792 against the allowance for loan losses. Loans
held-for-sale were written down an additional $5,034 subsequent to the transfer based on a third party valuation. We sold $25,314 of Florida problem loans in October 2010, which had a write down of $9,011. In connection with the anticipated Florida
transactions, we wrote down certain branch facilities to their purchase price, resulting in an impairment charge of $2,535, which was included in earnings for the period.

We 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 $7,141 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 $4,692, which was included in earnings for the period.

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



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



|(1) | In the first quarter of 2010, we determined that as of December 31, 2009, certain loans totaling $10,128 whose collateral values exceeded the carrying value of the
loan, although evaluated for impairment, should not have been included in loans carried at fair value. The remaining $23,234 loans should have been reported in Level 3 instead of Level 2. In addition, as of December 31, 2009, investment in real
estate totaling $14,639 should have been reported in Level 3 instead of Level 2. These loans and investment in real estate were appraised with methods other than the market sales approach (i.e. the income or cost approach which may use significant
unobservable inputs), the appraiser made significant adjustments to comparable sales, or management may have applied a significant adjustment to the value. Therefore, we have corrected the classifications as of September 30, 2010.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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



18



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





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.

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



|                                       |  |                    |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|-------------------------------------- |  | ------------------ | --------- |  | ------------------- | - | --------- | -------------- |  | - | ------------------- |  |  | - | --------- | 
|                                       |  | September 30, 2010 |           |  | December 31, 2009   |  
|                                       |  | CarryingAmount     |           |  | EstimatedFair Value |   |           | CarryingAmount |  |   | EstimatedFair Value | 
|Financial assets:                      |  |                    |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|Cash and cash equivalents              |  | $                  | 249,684   |  |                     | $ | 249,684   |                |  | $ | 197,176             |  |  | $ | 197,176   | 
|Securities available-for-sale          |  |                    | 198,530   |  |                     |   | 198,530   |                |  |   | 140,651             |  |  |   | 140,651   | 
|Securities held-to-maturity            |  |                    | 55,436    |  |                     |   | 58,922    |                |  |   | 117,171             |  |  |   | 119,890   | 
|Loans held-for-sale                    |  |                    | 111,505   |  |                     |   | 111,505   |                |  |   | 1,058               |  |  |   | 1,058     | 
|Loans receivable, net                  |  |                    | 903,622   |  |                     |   | 930,695   |                |  |   | 1,051,704           |  |  |   | 1,073,467 | 
|Federal Home Loan Bank of Dallas stock |  |                    | 9,602     |  |                     |   | 9,602     |                |  |   | 9,569               |  |  |   | 9,569     | 
|Accrued interest receivable            |  |                    | 5,268     |  |                     |   | 5,268     |                |  |   | 5,490               |  |  |   | 5,490     | 
|                                       |  |                    |           | 
|Financial liabilities:                 |  |                    |           |  |                     |   |           |                |  |   |                     |  |  |   |           | 
|Deposits                               |  | $                  | 1,044,052 |  |                     | $ | 1,047,382 |                |  | $ | 1,191,836           |  |  | $ | 1,192,584 | 
|Deposits held-for-sale                 |  |                    | 187,433   |  |                     |   | 188,031   |                |  |   |                    |  |  |   |          | 
|Borrowings and repurchase agreements   |  |                    | 220,818   |  |                     |   | 229,715   |                |  |   | 220,612             |  |  |   | 226,775   | 
|Accrued interest payable               |  |                    | 1,074     |  |                     |   | 1,074     |                |  |   | 1,227               |  |  |   | 1,227     | 
|Junior subordinated debentures         |  |                    | 20,619    |  |                     |   | 21,755    |                |  |   | 20,619              |  |  |   | 21,400    | 
|Accrued contingent consideration       |  |                    |          |  |                     |   |          |                |  |   | 7,926               |  |  |   | 7,926     | 

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

Cash and Cash Equivalents

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

Securities

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

Loans Receivable

We do not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for FASB ASC 820 disclosure purposes. However,
from time to time, we record



19



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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



nonrecurring fair value adjustments to loans to reflect (1) partial write downs that are based on the observable market price or current appraised value of the collateral, or (2) the
full charge-off of the loan carrying value. The fair value estimates for FASB ASC 820-10-35 purposes differentiate loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining
maturity.

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

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

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

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

Loans
Held-for-Sale

Loans held-for-sale are carried at the lower of cost or fair value. The fair value of loans held for sale is
based on commitments on hand from investors or prevailing market prices. As such, we classify loans subject to nonrecurring fair value adjustments as Level 2 or Level 3.

Federal Home Loan Bank of Dallas Stock

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

Investment in Real Estate

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

Goodwill and Other Intangible Assets

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

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



20



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing checking accounts and money market accounts, is equal to
the amount payable upon demand as of September 30, 2010 and December 31, 2009. The fair value of certificates of deposit is based on the lower of redemption or discounted value of contractual cash flows. Discount rates for certificates of
deposit are estimated using current market rates.

Borrowings and Repurchase Agreements

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

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

Junior Subordinated Debentures

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

Accrued Interest

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

Accrued Contingent Consideration

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

Unrecognized Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreement and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair
value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

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

Nonfinancial Instruments

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

NOTE J  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.



21



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





The accounting
policies of each line of business are the same as those described in the summary of significant accounting policies included in Note A to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2009. 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.



22



---

##### Table of Contents

Encore Bancshares, Inc. and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

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





Financial results
by operating segment were as follows:



|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|--------------------------------------------- |  | ------- | --------- | - | ---------------- | - | ------ | --------- |  | - | ----- |  |  | ------------ | ------- | - |  | - | --------- | -
|                                              |  | Banking |           |   | WealthManagement |   |        | Insurance |  |   | Other |  |  | Consolidated |        
|                                              |  |         |           |   |                 
|For the three months ended September 30, 2010 |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)                 |  | $       | 11,231    |   |                  | $ | 34     |           |  | $ | 5     |  |  | $            | (301    | ) |  | $ | 10,969    |  
|Provision for loan losses                     |  |         | 9,599     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 9,599     |  
|Noninterest income                            |  |         | 857       |   |                  |   | 4,638  |           |  |   | 1,533 |  |  |              |        |   |  |   | 7,028     |  
|Noninterest expense                           |  |         | 16,133    |   |                  |   | 3,442  |           |  |   | 1,153 |  |  |              |        |   |  |   | 20,728    |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes           |  |         | (13,644   | ) |                  |   | 1,230  |           |  |   | 385   |  |  |              | (301    | ) |  |   | (12,330   | )
|Income tax expense (benefit)                  |  |         | (4,370    | ) |                  |   | 438    |           |  |   | 134   |  |  |              | (106    | ) |  |   | (3,904    | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                           |  | $       | (9,274    | ) |                  | $ | 792    |           |  | $ | 251   |  |  | $            | (195    | ) |  | $ | (8,426    | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2010            |  | $       | 1,650,297 |   |                  | $ | 63,933 |           |  | $ | 9,063 |  |  | $            | (72,631 | ) |  | $ | 1,650,662 |  
|                                              |  |         |           |   |                 
|For the three months ended September 30, 2009 |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)                 |  | $       | 12,213    |   |                  | $ | 39     |           |  | $ | 5     |  |  | $            | (302    | ) |  | $ | 11,955    |  
|Provision for loan losses                     |  |         | 7,685     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 7,685     |  
|Noninterest income                            |  |         | 937       |   |                  |   | 4,501  |           |  |   | 1,375 |  |  |              |        |   |  |   | 6,813     |  
|Noninterest expense                           |  |         | 9,090     |   |                  |   | 3,088  |           |  |   | 1,111 |  |  |              |        |   |  |   | 13,289    |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes           |  |         | (3,625    | ) |                  |   | 1,452  |           |  |   | 269   |  |  |              | (302    | ) |  |   | (2,206    | )
|Income tax expense (benefit)                  |  |         | (1,028    | ) |                  |   | 586    |           |  |   | 94    |  |  |              | (105    | ) |  |   | (453      | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                           |  | $       | (2,597    | ) |                  | $ | 866    |           |  | $ | 175   |  |  | $            | (197    | ) |  | $ | (1,753    | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2009            |  | $       | 1,608,348 |   |                  | $ | 50,174 |           |  | $ | 7,390 |  |  | $            | (65,192 | ) |  | $ | 1,600,720 |  
|                                              |  |         |           |   |                 
|For the nine months ended September 30, 2010  |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)                 |  | $       | 34,164    |   |                  | $ | 115    |           |  | $ | 15    |  |  | $            | (896    | ) |  | $ | 33,398    |  
|Provision for loan losses                     |  |         | 32,572    |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 32,572    |  
|Noninterest income                            |  |         | 3,304     |   |                  |   | 13,849 |           |  |   | 4,731 |  |  |              |        |   |  |   | 21,884    |  
|Noninterest expense                           |  |         | 44,555    |   |                  |   | 10,551 |           |  |   | 3,281 |  |  |              |        |   |  |   | 58,387    |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes           |  |         | (39,659   | ) |                  |   | 3,413  |           |  |   | 1,465 |  |  |              | (896    | ) |  |   | (35,677   | )
|Income tax expense (benefit)                  |  |         | (13,757   | ) |                  |   | 1,211  |           |  |   | 513   |  |  |              | (314    | ) |  |   | (12,347   | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                           |  | $       | (25,902   | ) |                  | $ | 2,202  |           |  | $ | 952   |  |  | $            | (582    | ) |  | $ | (23,330   | )
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2010            |  | $       | 1,650,297 |   |                  | $ | 63,933 |           |  | $ | 9,063 |  |  | $            | (72,631 | ) |  | $ | 1,650,662 |  
|                                              |  |         |           |   |                 
|For the nine months ended September 30, 2009  |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)                 |  | $       | 35,675    |   |                  | $ | 115    |           |  | $ | 11    |  |  | $            | (927    | ) |  | $ | 34,874    |  
|Provision for loan losses                     |  |         | 13,651    |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 13,651    |  
|Noninterest income                            |  |         | 2,358     |   |                  |   | 12,337 |           |  |   | 4,549 |  |  |              |        |   |  |   | 19,244    |  
|Noninterest expense                           |  |         | 27,310    |   |                  |   | 9,226  |           |  |   | 3,201 |  |  |              |        |   |  |   | 39,737    |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes           |  |         | (2,928    | ) |                  |   | 3,226  |           |  |   | 1,359 |  |  |              | (927    | ) |  |   | 730       |  
|Income tax expense (benefit)                  |  |         | (839      | ) |                  |   | 1,213  |           |  |   | 477   |  |  |              | (324    | ) |  |   | 527       |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                           |  | $       | (2,089    | ) |                  | $ | 2,013  |           |  | $ | 882   |  |  | $            | (603    | ) |  | $ | 203       |  
|                                              |  |         |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2009            |  | $       | 1,608,348 |   |                  | $ | 50,174 |           |  | $ | 7,390 |  |  | $            | (65,192 | ) |  | $ | 1,600,720 |  



23



---

##### Table of Contents



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

Special Cautionary Note Regarding Forward-Looking Statements

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

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



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



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



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



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



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



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



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



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



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



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



| |  |  | 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;
| | - |  | --------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



24



---

##### Table of Contents



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 and four private client offices in southwest Florida. We also operate five wealth management offices and three insurance offices in Texas. As of September 30, 2010, we reported, on a consolidated basis, total assets of
$1.7 billion, total loans of $1.0 billion, total deposits of $1.2 billion, shareholders equity of $169.7 million and $2.7 billion in assets under management.

Recent Developments

In October 2010, Encore Bank sold $25.3 million of Florida loans in a
bulk sale. These loans were classified as held-for-sale as of September 30, 2010 and were marked to market in the third quarter of 2010, resulting in a charge of $8.5 million. This pool of loans included $19.8 million of nonaccrual loans. The
following table sets forth proforma nonperforming asset data as of September 30, 2010, giving effect to the loan sale as of such date (dollars in thousands):



|                                                                             |  |   |         |  
|---------------------------------------------------------------------------- |  | - | ------- | -
|Total nonperforming assets before sale                                       |  | $ | 62,548  |  
|Sale of Florida nonaccrual loans                                             |  |   | (19,803 | )
|                                                                             |  |   |         |  
|                                                                             | 
|Total nonperforming assets after sale                                        |  | $ | 42,745  |  
|                                                                             |  |   |         |  
|                                                                             | 
|Nonperforming assets to total loans and investment in real estate after sale |  |   | 4.18    | %

Florida Branch Transactions

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

Under the terms of the first agreement, based on data as of September 30, 2010,
NBSWF is to assume approximately $187.4 million of deposits associated with our four private client offices located in Naples, Ft. Myers and Sun City Center, Florida. NBSWF is also expected to purchase approximately $66.3 million of loans as well as
other assets, including premises and equipment. The amount of loans to be purchased is subject to decrease by the amount of any such loans that become adversely classified or downgraded to substandard or below. The purchase and assumption is subject
to regulatory approval, the closing of the purchase of NBSWF by Ovation Holdings, customary closing conditions and is expected to close during the fourth quarter 2010, although delays may occur.

The second agreement was with HomeBanc National Association (HomeBanc), headquartered in Lake Mary, Florida. Pursuant to this agreement, in May 2010,
HomeBanc assumed approximately $50.5 million of deposits and certain assets associated with our two private client offices in Clearwater and Belleair Bluffs, Florida. We recorded a gain on sale of branches of $1.1 million.

The deposits and loans expected to be acquired by NBSWF represent approximately 15.2% and 6.4% of our total deposits and loans at September 30,
2010, and are reflected on our consolidated balance sheet as loans and deposits held-for-sale as of September 30, 2010. We recorded a write down of $4.3 million ($1.8 million charge to the allowance for loan losses and $2.5 million write down
of assets held-for-sale) in the first quarter of 2010 to adjust the assets held-for-sale to their agreed purchase price. The gain on the sale of the deposits with respect to NBSWF will be recognized when the transaction is completed.



25



---

##### Table of Contents



Dodd-Frank Act

In July 2010, Congress enacted regulatory reform legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act),
which the President signed into law on July 21, 2010. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years, making it difficult for us to anticipate the overall financial impact to us,
Encore Bank or across the industry. This new law broadly affects the financial services industry by implementing changes to the financial regulatory landscape aimed at strengthening the sound operation of the financial services sector, including
provisions that, among other things, will:



| |  |  | Create a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer
financial laws;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, which, among
other things, will require us to deduct all trust preferred securities issued on or after May 19, 2010 from our Tier 1 capital (existing trust preferred securities issued prior to May 19, 2010 for all bank holding companies with less than
$15.0 billion in total consolidated assets as of December 31, 2009 are exempt from this requirement);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Require us to be well-capitalized and well-managed in order to acquire banks located outside our home state;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Broaden the base for FDIC insurance assessments from the amount of insured deposits to average total consolidated assets less average tangible equity
during the assessment period, which generally is expected to result in an increase in the level of assessments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Permanently increase FDIC deposit insurance to $250,000 and provide unlimited FDIC deposit insurance beginning December 31, 2010 until
January 1, 2013 for noninterest bearing demand transaction accounts at all insured depository institutions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Permit Encore Bank to engage in de novo interstate branching if the laws of the state where the new branch is to be established would permit the
establishment of the branch if Encore Bank were chartered by such state;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public
companies, not just financial institutions; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business
transaction and other accounts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our management is actively reviewing the provisions of the Dodd-Frank Act and assessing its
probable impact on our business, financial condition, and results of operations. Provisions in the legislation that affect deposit insurance assessments and payment of interest on demand deposits could increase the costs associated with deposits as
well as place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of newly issued trust preferred securities could require us to seek other sources of capital in the
future.

Critical Accounting Policies

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

Non-GAAP Financial Measures

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



26



---

##### Table of Contents

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.

Pending Accounting Pronouncements

FASB ASU 2010-20, Receivables (Topic 310): Disclosure
about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires additional disclosures that facilitate financial statement users evaluation of the nature of credit risk inherent in the entitys
portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. The ASU makes changes to existing disclosure
requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables, the aging of past due
financing receivables at the end of the reporting period by class of financing receivables, and the nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance
for credit losses. These disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are
effective for interim and annual reporting periods beginning on or after December 15, 2010. We do not expect ASU 2010-20 to have a material effect on our consolidated financial statements other than the new disclosures required by the ASU.

Results of Operations

Net
loss for the quarter ended September 30, 2010 was $8.4 million, compared with $1.8 million for the quarter ended September 30, 2009. Loss per diluted common share (after deducting preferred dividends) for the third quarter of 2010 was
$0.79, compared with $0.22 for the comparable period of 2009. The loss for the quarter was due primarily to mark-to-market write downs of certain Florida loans, including those we sold in October, and repossessed real estate.

We posted a return on average common equity of (24.02)% and (5.72)%, a return on average assets of (2.01)% and (0.43)%, and an efficiency ratio of
110.27% and 71.37% for the quarters ended September 30, 2010 and 2009. The efficiency ratio is calculated by dividing total noninterest expense (excluding amortization of intangibles and write down of assets held-for-sale) by the sum of net
interest income and noninterest income (excluding gains or losses on sales of securities and gain on sale of branches).

Net loss for the nine
months ended September 30, 2010 was $23.3 million, compared with net earnings of $203,000, for the same period of 2009. Loss per diluted common share for the nine months ended September 30, 2010 was $2.25 compared with $0.14 for the same
period of 2009. The loss was due primarily to credit costs and write downs of assets held-for-sale in Florida. We posted a return on average common equity of (21.45)% and (1.22)%, a return on average assets of (1.91)% and 0.02%, and an efficiency
ratio of 96.06% and 73.00% for the nine months ended September 30, 2010 and 2009.

Net Interest Income

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

Net interest income on a taxable-equivalent
basis (TE) was $11.1 million for the three months ended September 30, 2010, a decrease of $993,000, or 8.2%, compared with the third quarter of 2009. The net interest margin (TE) decreased 30 basis points to 2.83% for the same comparison
period. The decrease in margin was due primarily to the decrease in loans and an offsetting increase in short term lower yielding investments. In addition, we are maintaining a large temporary investment balance in anticipation of the sale of the
Florida branches.

Net interest income (TE) was $33.8 million for the nine months ended September 30, 2010, a decrease of $1.4 million,
or 4.1%, compared with the same period of 2009. For the nine months ended September 30, 2010, the net interest margin (TE) was 2.95%, a decrease of 17 basis points, compared with the same period of 2009. The decrease in margin was due primarily
to the decrease in loans and an offsetting increase in short term lower yielding investments.

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



27



---

##### Table of Contents



Taxable-Equivalent
Yield Analysis



|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|------------------------------------------------- |  | -------------------------------- | --------- | - | ---------------------- | - | ------ | ----------------- |  |  | ------------------------- | - |  | ---------------------- | --------- | - | ----------------- | - | ------ |  |  |  | ---- | -
|                                                  |  | Three Months Ended September 30, |          
|                                                  |  | 2010                             |           |   | 2009                   |  
|                                                  |  | AverageOutstandingBalance        |           |   | InterestIncome/Expense |   |        | AverageYield/Rate |  |  | AverageOutstandingBalance |   |  | InterestIncome/Expense |           |   | AverageYield/Rate |  
|                                                  |  | (dollars in thousands)           |          
|Assets:                                           |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-earning assets:                          |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Loans - TE yield (1)                              |  | $                                | 983,011   |   |                        | $ | 14,254 |                   |  |  | 5.75                      | % |  | $                      | 1,123,482 |   |                   | $ | 17,114 |  |  |  | 6.04 | %
|Loans held-for-sale                               |  |                                  | 73,646    |   |                        |   | 1,212  |                   |  |  | 6.53                      |   |  |                        | 1,716     |   |                   |   | 34     |  |  |  | 7.86 |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total loans - TE yield (1)                        |  |                                  | 1,056,657 |   |                        |   | 15,466 |                   |  |  | 5.81                      |   |  |                        | 1,125,198 |   |                   |   | 17,148 |  |  |  | 6.05 |  
|Securities - TE yield (1)                         |  |                                  | 209,365   |   |                        |   | 1,337  |                   |  |  | 2.53                      |   |  |                        | 235,819   |   |                   |   | 2,315  |  |  |  | 3.89 |  
|Federal funds sold and other                      |  |                                  | 290,541   |   |                        |   | 238    |                   |  |  | 0.32                      |   |  |                        | 168,213   |   |                   |   | 180    |  |  |  | 0.42 |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-earning assets - TE yield (1)      |  |                                  | 1,556,563 |   |                        |   | 17,041 |                   |  |  | 4.34                      |   |  |                        | 1,529,230 |   |                   |   | 19,643 |  |  |  | 5.10 |  
|Less: Allowance for loan losses                   |  |                                  | (27,144   | ) |                        |   |        |                   |  |  |                           |   |  |                        | (23,972   | ) |                   |   |        |  |  |  |      |  
|Noninterest-earning assets                        |  |                                  | 128,197   |   |                        |   |        |                   |  |  |                           |   |  |                        | 109,852   |   |                   |   |        |  |  |  |      |  
|Noninterest-earning assets held-for-sale          |  |                                  | 4,196     |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total assets                                      |  | $                                | 1,661,812 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,615,110 |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Liabilities and shareholders equity:             |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-bearing liabilities:                     |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest checking                                 |  | $                                | 139,820   |   |                        | $ | 90     |                   |  |  | 0.26                      | % |  | $                      | 191,553   |   |                   | $ | 227    |  |  |  | 0.47 | %
|Money market and savings                          |  |                                  | 279,084   |   |                        |   | 442    |                   |  |  | 0.63                      |   |  |                        | 306,789   |   |                   |   | 833    |  |  |  | 1.08 |  
|Time deposits                                     |  |                                  | 410,318   |   |                        |   | 2,295  |                   |  |  | 2.22                      |   |  |                        | 525,821   |   |                   |   | 4,071  |  |  |  | 3.07 |  
|Interest-bearing deposits held-for-sale           |  |                                  | 171,805   |   |                        |   | 698    |                   |  |  | 1.61                      |   |  |                        |          |   |                   |   |       |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing deposits                   |  |                                  | 1,001,027 |   |                        |   | 3,525  |                   |  |  | 1.40                      |   |  |                        | 1,024,163 |   |                   |   | 5,131  |  |  |  | 1.99 |  
|Borrowings and repurchase agreements              |  |                                  | 220,068   |   |                        |   | 2,127  |                   |  |  | 3.83                      |   |  |                        | 222,978   |   |                   |   | 2,129  |  |  |  | 3.79 |  
|Junior subordinated debentures                    |  |                                  | 20,619    |   |                        |   | 301    |                   |  |  | 5.79                      |   |  |                        | 20,619    |   |                   |   | 302    |  |  |  | 5.81 |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing liabilities                |  |                                  | 1,241,714 |   |                        |   | 5,953  |                   |  |  | 1.90                      |   |  |                        | 1,267,760 |   |                   |   | 7,562  |  |  |  | 2.37 |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing liabilities:                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits                      |  |                                  | 220,166   |   |                        |   |        |                   |  |  |                           |   |  |                        | 147,888   |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits held-for-sale        |  |                                  | 14,983    |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|Other liabilities                                 |  |                                  | 7,132     |   |                        |   |        |                   |  |  |                           |   |  |                        | 10,792    |   |                   |   |        |  |  |  |      |  
|Other liabilities held-for-sale                   |  |                                  | 216       |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities                                 |  |                                  | 1,484,211 |   |                        |   |        |                   |  |  |                           |   |  |                        | 1,426,440 |   |                   |   |        |  |  |  |      |  
|Shareholders equity                              |  |                                  | 177,601   |   |                        |   |        |                   |  |  |                           |   |  |                        | 188,670   |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities and shareholders equity        |  | $                                | 1,661,812 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,615,110 |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income TE (1)                        |  |                                  |           |   |                        | $ | 11,088 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 12,081 |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest spread TE (1)                        |  |                                  |           |   |                        |   |        |                   |  |  | 2.44                      | % |  |                        |           |   |                   |   |        |  |  |  | 2.73 | %
|Net interest margin TE (1)                        |  |                                  |           |   |                        |   |        |                   |  |  | 2.83                      | % |  |                        |           |   |                   |   |        |  |  |  | 3.13 | %
|Net interest income                               |  |                                  |           |   |                        | $ | 10,969 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 11,955 |  |  |  |      |  
|Taxable-equivalent adjustment                     |  |                                  |           |   |                        |   | 119    |                   |  |  |                           |   |  |                        |           |   |                   |   | 126    |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income on a taxable-equivalent basis |  |                                  |           |   |                        | $ | 11,088 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 12,081 |  |  |  |      |  
|                                                  |  |                                  |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  



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



28



---

##### Table of Contents



Taxable-Equivalent
Yield Analysis



|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|------------------------------------------------- |  | ------------------------------- | --------- | - | ---------------------- | - | ------ | ----------------- |  |  | ------------------------- | - |  | ---------------------- | --------- | - | ----------------- | - | ------ |  |  |  | ---- | -
|                                                  |  | Nine Months Ended September 30, |          
|                                                  |  | 2010                            |           |   | 2009                   |  
|                                                  |  | AverageOutstandingBalance       |           |   | InterestIncome/Expense |   |        | AverageYield/Rate |  |  | AverageOutstandingBalance |   |  | InterestIncome/Expense |           |   | AverageYield/Rate |  
|                                                  |  | (dollars in thousands)          |          
|Assets:                                           |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-earning assets:                          |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Loans - TE yield (1)                              |  | $                               | 980,257   |   |                        | $ | 42,811 |                   |  |  | 5.84                      | % |  | $                      | 1,165,897 |   |                   | $ | 51,949 |  |  |  | 5.96 | %
|Loans held-for-sale (2)                           |  |                                 | 79,957    |   |                        |   | 3,920  |                   |  |  | 6.55                      |   |  |                        | 1,574     |   |                   |   | 94     |  |  |  | 7.98 |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total loans - TE yield (1)                        |  |                                 | 1,060,214 |   |                        |   | 46,731 |                   |  |  | 5.89                      |   |  |                        | 1,167,471 |   |                   |   | 52,043 |  |  |  | 5.96 |  
|Securities - TE yield (1)                         |  |                                 | 208,767   |   |                        |   | 5,029  |                   |  |  | 3.22                      |   |  |                        | 213,257   |   |                   |   | 6,461  |  |  |  | 4.05 |  
|Federal funds sold and other                      |  |                                 | 262,161   |   |                        |   | 687    |                   |  |  | 0.35                      |   |  |                        | 128,552   |   |                   |   | 492    |  |  |  | 0.51 |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-earning assets - TE yield (1)      |  |                                 | 1,531,142 |   |                        |   | 52,447 |                   |  |  | 4.58                      |   |  |                        | 1,509,280 |   |                   |   | 58,996 |  |  |  | 5.23 |  
|Less: Allowance for loan losses                   |  |                                 | (26,206   | ) |                        |   |        |                   |  |  |                           |   |  |                        | (24,932   | ) |                   |   |        |  |  |  |      |  
|Noninterest-earning assets                        |  |                                 | 125,579   |   |                        |   |        |                   |  |  |                           |   |  |                        | 110,792   |   |                   |   |        |  |  |  |      |  
|Noninterest-earning assets held-for-sale (2)      |  |                                 | 5,340     |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total assets                                      |  | $                               | 1,635,855 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,595,140 |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Liabilities and shareholders equity:             |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest-bearing liabilities:                     |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Interest checking                                 |  | $                               | 146,185   |   |                        | $ | 325    |                   |  |  | 0.30                      | % |  | $                      | 183,676   |   |                   | $ | 652    |  |  |  | 0.47 | %
|Money market and savings                          |  |                                 | 252,601   |   |                        |   | 1,395  |                   |  |  | 0.74                      |   |  |                        | 259,776   |   |                   |   | 2,196  |  |  |  | 1.13 |  
|Time deposits                                     |  |                                 | 408,831   |   |                        |   | 7,111  |                   |  |  | 2.33                      |   |  |                        | 548,363   |   |                   |   | 13,658 |  |  |  | 3.33 |  
|Interest-bearing deposits held-for-sale (2)       |  |                                 | 197,668   |   |                        |   | 2,571  |                   |  |  | 1.74                      |   |  |                        |          |   |                   |   |       |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing deposits                   |  |                                 | 1,005,285 |   |                        |   | 11,402 |                   |  |  | 1.52                      |   |  |                        | 991,815   |   |                   |   | 16,506 |  |  |  | 2.23 |  
|Borrowings and repurchase agreements              |  |                                 | 219,871   |   |                        |   | 6,382  |                   |  |  | 3.88                      |   |  |                        | 234,755   |   |                   |   | 6,364  |  |  |  | 3.62 |  
|Junior subordinated debentures                    |  |                                 | 20,619    |   |                        |   | 896    |                   |  |  | 5.81                      |   |  |                        | 20,619    |   |                   |   | 927    |  |  |  | 6.01 |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total interest-bearing liabilities                |  |                                 | 1,245,775 |   |                        |   | 18,680 |                   |  |  | 2.00                      |   |  |                        | 1,247,189 |   |                   |   | 23,797 |  |  |  | 2.55 |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing liabilities:                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits                      |  |                                 | 178,591   |   |                        |   |        |                   |  |  |                           |   |  |                        | 149,348   |   |                   |   |        |  |  |  |      |  
|Noninterest-bearing deposits held-for-sale (2)    |  |                                 | 16,667    |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|Other liabilities                                 |  |                                 | 9,612     |   |                        |   |        |                   |  |  |                           |   |  |                        | 10,810    |   |                   |   |        |  |  |  |      |  
|Other liabilities held-for-sale (2)               |  |                                 | 257       |   |                        |   |        |                   |  |  |                           |   |  |                        |          |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities                                 |  |                                 | 1,450,902 |   |                        |   |        |                   |  |  |                           |   |  |                        | 1,407,347 |   |                   |   |        |  |  |  |      |  
|Shareholders equity                              |  |                                 | 184,953   |   |                        |   |        |                   |  |  |                           |   |  |                        | 187,793   |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Total liabilities and shareholders equity        |  | $                               | 1,635,855 |   |                        |   |        |                   |  |  |                           |   |  | $                      | 1,595,140 |   |                   |   |        |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income TE (1)                        |  |                                 |           |   |                        | $ | 33,767 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 35,199 |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest spread TE (1)                        |  |                                 |           |   |                        |   |        |                   |  |  | 2.58                      | % |  |                        |           |   |                   |   |        |  |  |  | 2.68 | %
|Net interest margin TE (1)                        |  |                                 |           |   |                        |   |        |                   |  |  | 2.95                      | % |  |                        |           |   |                   |   |        |  |  |  | 3.12 | %
|                                                  |  |                                 |           |   |                        |  
|Net interest income                               |  |                                 |           |   |                        | $ | 33,398 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 34,874 |  |  |  |      |  
|Taxable-equivalent adjustment                     |  |                                 |           |   |                        |   | 369    |                   |  |  |                           |   |  |                        |           |   |                   |   | 325    |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  
|Net interest income on a taxable-equivalent basis |  |                                 |           |   |                        | $ | 33,767 |                   |  |  |                           |   |  |                        |           |   |                   | $ | 35,199 |  |  |  |      |  
|                                                  |  |                                 |           |   |                        |   |        |                   |  |  |                           |   |  |                        |           |   |                   |   |        |  |  |  |      |  



|(1) | Non-GAAP measure. On a 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.
|--- | ------------------------------------------------------------------------------------------------------------------------



29



---

##### 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 we consider adequate in relation to the estimated losses inherent in the loan portfolio. The provision was $9.6 million and $32.6 million for the three months and nine months ended September 30,
2010, compared with $7.7 million and $13.7 million for the same periods of 2009. The increase in the provision in both periods compared with the same periods of 2009 reflects the amount we considered necessary to fund estimated losses inherent in
the loan portfolio primarily as a result of the recessionary economic environment, declining collateral values in Florida, higher net charge-offs in 2010, due in part to the $11.3 million mark-to-market of Florida loans reclassified to
held-for-sale, and other qualitative factors, including our historical loan loss experience, the experience, ability and effectiveness of our lending management and staff, the effectiveness of our loan policies, procedures and internal controls,
strategic initiatives, the composition and concentrations of credit, changes in underlying collateral values, nonperforming and loan classification trends, the effectiveness of the internal loan review function and general economic conditions.

Noninterest Income

Noninterest income represented 39.05% and 36.30% of total revenue for the three months ended September 30, 2010 and 2009.

Noninterest income increased $215,000, or 3.2%, to $7.0 million for the three months ended September 30, 2010, compared with the same period in
2009. The increase was due primarily to a $138,000, or 3.1%, increase in trust and investment management fees and a $159,000, or 11.6%, increase in insurance commissions because of new commercial business. The rise in trust and investment management
fees was due to an 8.5% increase in assets under management.

Noninterest income increased $2.6 million, or 13.7%, to $21.9 million for the
nine months ended September 30, 2010, compared with the same period in 2009. The increase was due primarily to a $1.1 million gain on the sale of two Florida branches and a $1.5 million, or 12.2%, increase in trust and investment management
fees.

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



|                                                  |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                                                  |  | Three MonthsEnded September 30, |       |  | Nine MonthsEnded September 30, |  
|                                                  |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009   | 
|                                                  |  | (dollars in thousands)          |      
|Trust and investment management fees              |  | $                               | 4,639 |  |                                | $ | 4,501 |      |  | $ | 13,848 |  |  | $ | 12,337 | 
|Mortgage banking                                  |  |                                 | 150   |  |                                |   | 110   |      |  |   | 264    |  |  |   | 612    | 
|Insurance commissions and fees                    |  |                                 | 1,524 |  |                                |   | 1,365 |      |  |   | 4,651  |  |  |   | 4,379  | 
|Net gain on sale of available-for-sale securities |  |                                 | 261   |  |                                |   | 387   |      |  |   | 480    |  |  |   | 387    | 
|Gain on sale of branches                          |  |                                 |      |  |                                |   |      |      |  |   | 1,115  |  |  |   |       | 
|Other                                             |  |                                 | 454   |  |                                |   | 450   |      |  |   | 1,526  |  |  |   | 1,529  | 
|                                                  |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 
|Total noninterest income                          |  | $                               | 7,028 |  |                                | $ | 6,813 |      |  | $ | 21,884 |  |  | $ | 19,244 | 
|                                                  |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 

Noninterest Expense

Noninterest expense was $20.7 million for the third quarter of 2010, an increase of $7.4 million, compared with the same period of 2009. The increase was due primarily to a combination of higher
compensation expense, foreclosed real estate expense, FDIC assessment and write down of loans held for sale. Compensation expense rose in part due to the addition of new lenders added earlier in the year to grow the banks commercial lending
platform in Houston. The increase in FDIC assessment reflects a higher assessment rate and a more rapid amortization of the prepaid FDIC assessment. The rise in foreclosed real estate expense reflected $3.2 million in write downs of primarily
Florida real estate. In addition, we incurred $1.0 million in write downs of loans held for sale.

Noninterest expense was $58.4 million for
the first nine months of 2010, an increase of $18.7 million, compared with the same period of 2009. The increase was due primarily to the same factors discussed above.



30



---

##### Table of Contents



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



|                                     |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        | 
|------------------------------------ |  | ------------------------------- | ------ |  | ------------------------------ | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                     |  | Three MonthsEnded September 30, |        |  | Nine MonthsEnded September 30, |  
|                                     |  | 2010                            |        |  | 2009                           |   |        | 2010 |  |   | 2009   | 
|                                     |  | (dollars in thousands)          |       
|Compensation                         |  | $                               | 8,503  |  |                                | $ | 7,761  |      |  | $ | 25,692 |  |  | $ | 22,506 | 
|Non-staff expenses:                  |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        | 
|Occupancy                            |  |                                 | 1,395  |  |                                |   | 1,496  |      |  |   | 4,327  |  |  |   | 4,504  | 
|Equipment                            |  |                                 | 274    |  |                                |   | 430    |      |  |   | 967    |  |  |   | 1,312  | 
|Advertising and promotion            |  |                                 | 146    |  |                                |   | 214    |      |  |   | 480    |  |  |   | 630    | 
|Outside data processing              |  |                                 | 874    |  |                                |   | 797    |      |  |   | 2,641  |  |  |   | 2,344  | 
|Professional fees                    |  |                                 | 1,325  |  |                                |   | 912    |      |  |   | 3,681  |  |  |   | 2,891  | 
|Intangible amortization              |  |                                 | 158    |  |                                |   | 171    |      |  |   | 475    |  |  |   | 511    | 
|FDIC assessment                      |  |                                 | 1,532  |  |                                |   | 270    |      |  |   | 2,890  |  |  |   | 1,068  | 
|Foreclosed real estate expenses, net |  |                                 | 4,458  |  |                                |   | 183    |      |  |   | 6,984  |  |  |   | 828    | 
|Write down of assets held-for-sale   |  |                                 | 1,012  |  |                                |   |       |      |  |   | 6,340  |  |  |   |       | 
|Other                                |  |                                 | 1,051  |  |                                |   | 1,055  |      |  |   | 3,910  |  |  |   | 3,143  | 
|                                     |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        | 
|Total noninterest expense            |  | $                               | 20,728 |  |                                | $ | 13,289 |      |  | $ | 58,387 |  |  | $ | 39,737 | 
|                                     |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        | 

Income Tax Expense

The income tax benefit was $3.9 million for the three months ended September 30, 2010, compared with $453,000 for the same three months of 2009. The effective tax rate for the three months ended
September 30, 2010 and 2009 was 31.7% and 20.5%. The income tax benefit was $12.3 million for the nine months ended September 30, 2010, compared with a provision of $527,000 for the same period of 2009. The effective tax rate for the nine
months ended September 30, 2010 and 2009 was 34.6% and 72.2%. The higher than normal year-to-date effective tax rate in 2009 was affected by lower income levels and immaterial return-to-accrual reconciliation differences.

Result of Segment Operations

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



31



---

##### 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 September 30, 2010 |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)         |  | $                      | 11,231    |   |                  | $ | 34     |           |  | $ | 5     |  |  | $            | (301    | ) |  | $ | 10,969    |  
|Provision for loan losses             |  |                        | 9,599     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 9,599     |  
|Noninterest income                    |  |                        | 857       |   |                  |   | 4,638  |           |  |   | 1,533 |  |  |              |        |   |  |   | 7,028     |  
|Noninterest expense                   |  |                        | 16,133    |   |                  |   | 3,442  |           |  |   | 1,153 |  |  |              |        |   |  |   | 20,728    |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes   |  |                        | (13,644   | ) |                  |   | 1,230  |           |  |   | 385   |  |  |              | (301    | ) |  |   | (12,330   | )
|Income tax expense (benefit)          |  |                        | (4,370    | ) |                  |   | 438    |           |  |   | 134   |  |  |              | (106    | ) |  |   | (3,904    | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                   |  | $                      | (9,274    | ) |                  | $ | 792    |           |  | $ | 251   |  |  | $            | (195    | ) |  | $ | (8,426    | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2010    |  | $                      | 1,650,297 |   |                  | $ | 63,933 |           |  | $ | 9,063 |  |  | $            | (72,631 | ) |  | $ | 1,650,662 |  
|                                      |  |                        |           |   |                 
|Three months ended September 30, 2009 |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)         |  | $                      | 12,213    |   |                  | $ | 39     |           |  | $ | 5     |  |  | $            | (302    | ) |  | $ | 11,955    |  
|Provision for loan losses             |  |                        | 7,685     |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 7,685     |  
|Noninterest income                    |  |                        | 937       |   |                  |   | 4,501  |           |  |   | 1,375 |  |  |              |        |   |  |   | 6,813     |  
|Noninterest expense                   |  |                        | 9,090     |   |                  |   | 3,088  |           |  |   | 1,111 |  |  |              |        |   |  |   | 13,289    |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes   |  |                        | (3,625    | ) |                  |   | 1,452  |           |  |   | 269   |  |  |              | (302    | ) |  |   | (2,206    | )
|Income tax expense (benefit)          |  |                        | (1,028    | ) |                  |   | 586    |           |  |   | 94    |  |  |              | (105    | ) |  |   | (453      | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                   |  | $                      | (2,597    | ) |                  | $ | 866    |           |  | $ | 175   |  |  | $            | (197    | ) |  | $ | (1,753    | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2009    |  | $                      | 1,608,348 |   |                  | $ | 50,174 |           |  | $ | 7,390 |  |  | $            | (65,192 | ) |  | $ | 1,600,720 |  
|                                      |  |                        |           |   |                 
|Nine months ended September 30, 2010  |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)         |  | $                      | 34,164    |   |                  | $ | 115    |           |  | $ | 15    |  |  | $            | (896    | ) |  | $ | 33,398    |  
|Provision for loan losses             |  |                        | 32,572    |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 32,572    |  
|Noninterest income                    |  |                        | 3,304     |   |                  |   | 13,849 |           |  |   | 4,731 |  |  |              |        |   |  |   | 21,884    |  
|Noninterest expense                   |  |                        | 44,555    |   |                  |   | 10,551 |           |  |   | 3,281 |  |  |              |        |   |  |   | 58,387    |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes   |  |                        | (39,659   | ) |                  |   | 3,413  |           |  |   | 1,465 |  |  |              | (896    | ) |  |   | (35,677   | )
|Income tax expense (benefit)          |  |                        | (13,757   | ) |                  |   | 1,211  |           |  |   | 513   |  |  |              | (314    | ) |  |   | (12,347   | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                   |  | $                      | (25,902   | ) |                  | $ | 2,202  |           |  | $ | 952   |  |  | $            | (582    | ) |  | $ | (23,330   | )
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2010    |  | $                      | 1,650,297 |   |                  | $ | 63,933 |           |  | $ | 9,063 |  |  | $            | (72,631 | ) |  | $ | 1,650,662 |  
|                                      |  |                        |           |   |                 
|Nine months ended September 30, 2009  |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net interest income (expense)         |  | $                      | 35,675    |   |                  | $ | 115    |           |  | $ | 11    |  |  | $            | (927    | ) |  | $ | 34,874    |  
|Provision for loan losses             |  |                        | 13,651    |   |                  |   |       |           |  |   |      |  |  |              |        |   |  |   | 13,651    |  
|Noninterest income                    |  |                        | 2,358     |   |                  |   | 12,337 |           |  |   | 4,549 |  |  |              |        |   |  |   | 19,244    |  
|Noninterest expense                   |  |                        | 27,310    |   |                  |   | 9,226  |           |  |   | 3,201 |  |  |              |        |   |  |   | 39,737    |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Earnings (loss) before income taxes   |  |                        | (2,928    | ) |                  |   | 3,226  |           |  |   | 1,359 |  |  |              | (927    | ) |  |   | 730       |  
|Income tax expense (benefit)          |  |                        | (839      | ) |                  |   | 1,213  |           |  |   | 477   |  |  |              | (324    | ) |  |   | 527       |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Net earnings (loss)                   |  | $                      | (2,089    | ) |                  | $ | 2,013  |           |  | $ | 882   |  |  | $            | (603    | ) |  | $ | 203       |  
|                                      |  |                        |           |   |                  |   |        |           |  |   |       |  |  |              |         |   |  |   |           |  
|Total assets at September 30, 2009    |  | $                      | 1,608,348 |   |                  | $ | 50,174 |           |  | $ | 7,390 |  |  | $            | (65,192 | ) |  | $ | 1,600,720 |  



32



---

##### Table of Contents



Banking

Our banking segment had a net loss of $9.3 million for the three months ended September 30, 2010, compared with $2.6 million for the same period in
2009. Net loss for the nine months ended September 30, 2010 was $25.9 million, compared with $2.1 million for the same period in 2009.

Net interest income for the three months ended September 30, 2010 decreased $982,000, or 8.0%, compared with the same period of 2009. Net interest
income for the nine months ended September 30, 2010 decreased $1.5 million, or 4.2%, compared with the same period of 2009. The decrease in both periods resulted primarily from a decrease in loans and an increase in short term lower yielding
investments. 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 September 30, 2010 totaled $9.6 million, compared with $7.7 million for the same period of
2009. The provision for loan losses for the nine months ended September 30, 2010 totaled $32.6 million, compared with $13.7 million for the same period of 2009. See analysis of the provision for loan losses included in the section of this
report captioned Provision for Loan Losses.

Noninterest income for the three months ended September 30, 2010 was
essentially flat compared with the same period in 2009. Noninterest income for the nine months ended September 30, 2010 increased $946,000 compared with the same period of 2009. The increase in the year-to-date period was due primarily to the
gain on sale of two Florida branches.

Noninterest expense for the three months ended September 30, 2010 increased $7.0 million primarily
due to a write down on assets held-for-sale and higher compensation, foreclosed real estate expenses and FDIC assessment. Noninterest expense for the nine months ended September 30, 2010 increased $17.2 million compared with the same period of
2009, due to the aforementioned factors.

Wealth Management

Net earnings for the three months ended September 30, 2010 were essentially flat compared with the same period in 2009. Net earnings for the nine months ended September 30, 2010 increased
$189,000, or 9.4%, compared with the same period in 2009. The increase in earnings in the year-to-date period was due primarily to an increase in assets under management, resulting in a rise in fees. Assets under management increased 8.5% from
September 30, 2009 to $2.7 billion as of September 30, 2010.

Noninterest income for the three months ended September 30, 2010
increased $137,000, or 3.0%, compared with the same period in 2009, due primarily to the aforementioned increase in assets under management. Noninterest income for the nine months ended September 30, 2010, increased $1.5 million, or 12.3%.

Noninterest expense for the three months ended September 30, 2010 increased $354,000, or 11.5%, compared with the same period in 2009.
Noninterest expense for the nine months ended September 30, 2010 increased $1.3 million, or 14.4%. The increase in both periods was primarily due to an increase in compensation expense.

Insurance

Net earnings increased $76,000 for the three months and $70,000, or 7.9%, for
the nine months ended September 30, 2010, as compared to 2009. The increases were due to higher insurance commissions associated with new commercial customers.

Noninterest income increased $158,000, or 11.5%, for the three months and $182,000, or 4.0%, for the nine months ended September 30, 2010, as compared to 2009. Noninterest expense was essentially
flat for the three months and nine months ended September 30, 2010, as compared to 2009.

Other

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

Financial Condition

Our total assets increased $15.3 million, or 0.9%, to $1.7 billion as of September 30, 2010 compared with December 31, 2009. Our loan portfolio
declined $43.2 million, or 4.0%, to $1.0 billion as of September 30, 2010. Our securities portfolio decreased $3.9 million, or 1.5%, to $254.0 million compared with $257.8 million as of December 31, 2009. Shareholders equity
decreased $17.0 million, or 9.1%, to $169.7 million compared with $186.7 million as of December 31, 2009.

Loan Portfolio

Our primary lending focus is to professional firms, privately-owned businesses, investors and affluent individuals. To these customers, we
make commercial, commercial real estate, real estate construction, residential real estate and consumer loans. Total commercial loans, which consist of commercial, commercial real estate and real estate construction loans, accounted



33



---

##### Table of Contents

for 33.5% of our portfolio as of September 30, 2010. Total consumer loans, which consist of residential real estate, home equity lines of credit, consumer installment-indirect and other
consumer loans, made up 55.7% of our loan portfolio as of September 30, 2010. Loans held-for-sale, including $103.3 million related to our Florida operations, composed 10.8% of our portfolio.

Total loans were $1.0 billion as of September 30, 2010, a decrease of $43.2 million, or 4.0%, compared with December 31, 2009. The decrease was
due primarily to lower construction, land loans and commercial real estate loans. Commercial loans in Texas grew 8.9% in the same comparison period.

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



|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|----------------------------------- |  | ---------------------- | --------- |  | ---------------- |  | ----- | ------ |  | - | --------- |  |  |  | ----- | -
|                                    |  | September 30,2010      |           |  | December 31,2009 | 
|                                    |  | Amount                 |           |  | Percent          |  |       | Amount |  |   | Percent   | 
|                                    |  | (dollars in thousands) |          
|Commercial:                         |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Commercial                          |  | $                      | 138,594   |  |                  |  | 13.4  | %      |  | $ | 115,431   |  |  |  | 10.7  | %
|Commercial real estate              |  |                        | 154,476   |  |                  |  | 14.9  |        |  |   | 259,480   |  |  |  | 24.0  |  
|Real estate construction            |  |                        | 54,140    |  |                  |  | 5.2   |        |  |   | 87,008    |  |  |  | 8.1   |  
|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Total commercial                    |  |                        | 347,210   |  |                  |  | 33.5  |        |  |   | 461,919   |  |  |  | 42.8  |  
|                                    |  |                        |           | 
|Consumer:                           |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Residential real estate first lien  |  |                        | 207,386   |  |                  |  | 20.0  |        |  |   | 222,337   |  |  |  | 20.6  |  
|Residential real estate second lien |  |                        | 280,245   |  |                  |  | 27.0  |        |  |   | 291,433   |  |  |  | 27.0  |  
|Home equity lines                   |  |                        | 63,983    |  |                  |  | 6.2   |        |  |   | 74,356    |  |  |  | 6.9   |  
|Consumer installment  indirect     |  |                        | 5,520     |  |                  |  | 0.5   |        |  |   | 8,372     |  |  |  | 0.8   |  
|Consumer other                      |  |                        | 20,245    |  |                  |  | 2.0   |        |  |   | 19,788    |  |  |  | 1.8   |  
|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Total consumer                      |  |                        | 577,379   |  |                  |  | 55.7  |        |  |   | 616,286   |  |  |  | 57.1  |  
|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Loans receivable                    |  |                        | 924,589   |  |                  |  | 89.2  |        |  |   | 1,078,205 |  |  |  | 99.9  |  
|Loans held-for-sale                 |  |                        | 111,505   |  |                  |  | 10.8  |        |  |   | 1,058     |  |  |  | 0.1   |  
|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  
|Total loans                         |  | $                      | 1,036,094 |  |                  |  | 100.0 | %      |  | $ | 1,079,263 |  |  |  | 100.0 | %
|                                    |  |                        |           |  |                  |  |       |        |  |   |           |  |  |  |       |  

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:



|                                                                  |  |                        |        |   |                  |   |        |  
|----------------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                  |  | September 30,2010      |        |   | December 31,2009 |  
|                                                                  |  | (dollars in thousands) |       
|Nonaccrual loans  Texas (1)                                      |  | $                      | 17,445 |   |                  | $ | 9,908  |  
|Nonaccrual loans  Florida (1)                                    |  |                        | 34,251 |   |                  |   | 26,080 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonaccrual loans (1)                                        |  |                        | 51,696 |   |                  |   | 35,988 |  
|Investment in real estate  Texas                                 |  |                        | 5,762  |   |                  |   | 9,494  |  
|Investment in real estate  Florida                               |  |                        | 5,090  |   |                  |   | 5,145  |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total investment in real estate                                   |  |                        | 10,852 |   |                  |   | 14,639 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Total nonperforming assets                                        |  | $                      | 62,548 |   |                  | $ | 50,627 |  
|                                                                  |  |                        |        |   |                  |   |        |  
|                                                                  |  |                       
|Accruing loans past due 90 days or more                           |  | $                      |       |   |                  | $ | 1,489  |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Restructured loans still accruing                                 |  | $                      | 2,570  |   |                  | $ | 530    |  
|                                                                  |  |                        |        |   |                  |   |        |  
|Nonperforming assets to total loans and investment in real estate |  |                        | 5.97   | % |                  |   | 4.63   | %



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



34



---

##### Table of Contents



Nonperforming assets were $62.5
million and $50.6 million as of September 30, 2010 and December 31, 2009. Our ratio of nonperforming assets to total loans and investment in real estate was 5.97% and 4.63% as of September 30, 2010 and December 31, 2009. At
September 30, 2010, nonaccrual loans were $51.7 million, compared with $36.0 million at December 31, 2009, an increase of $15.7 million. In October 2010, we sold $19.8 million of Florida nonaccrual loans, which were classified as
held-for-sale at September 30, 2010. Nonaccrual commercial loans consisted primarily of one relationship in Houston. In Texas, commercial real estate nonaccrual loans consisted of two relationships totaling $2.7 million. Construction and land
nonaccrual loans consisted primarily of a $4.8 million land loan in Houston. The remainder of the loans in this category are land loans, mainly in Florida, none of which has a balance greater than $1.0 million.

Nonaccrual loans held-for-sale were $28.1 million at September 30, 2010. In October 2010, we sold $19.8 million of these loans. The remainder of the
nonaccrual loans which are classified as held-for-sale consist of seven relationships totaling approximately $8.3 million. These loans are primarily commercial real estate loans in Florida.

Investment in real estate was $10.9 million at September 30, 2010 compared with $14.6 million at December 31, 2009, a decrease of $3.8 million, or 25.9%. The decrease was due primarily to write
downs of the Florida real estate held for investment to market value. Loans 90 days or more past due and still accruing, which are not included as nonperforming loans or assets, were reduced to zero at September 30, 2010 from $1.5 million at
December 31, 2009. This category consisted of one commercial real estate loan in Florida, which is now classified as nonaccrual. Restructured loans still accruing were $2.6 million as of September 30, 2010, compared with $530,000 as of
December 31, 2009. Restructured loans still accruing consisted primarily of a land loan in Florida and four residential loans in Houston.

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



|                                                          |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|--------------------------------------------------------- |  | ------------------ | ------ |  | ------------------------------- | - | ----- | ------------------ |  | - | ------------------------------ |  |  | - | ----- | 
|                                                          |  | September 30, 2010 |        |  | December 31, 2009               |  
|                                                          |  | OutstandingBalance |        |  | SpecificAllocation 
ofAllowance |   |       | OutstandingBalance |  |   | SpecificAllocation ofAllowance | 
|                                                          |  |                    |        |  | (dollars in thousands)          |   |       |                    | 
|Commercial:                                               |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|Commercial                                                |  | $                  | 605    |  |                                 | $ |      |                    |  | $ | 1,829                          |  |  | $ | 1,147 | 
|Commercial real estate                                    |  |                    | 4,523  |  |                                 |   |      |                    |  |   | 13,129                         |  |  |   | 4,694 | 
|Real estate construction                                  |  |                    | 6,400  |  |                                 |   | 1,747 |                    |  |   | 12,773                         |  |  |   | 142   | 
|                                                          |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|Total commercial                                          |  |                    | 11,528 |  |                                 |   | 1,747 |                    |  |   | 27,731                         |  |  |   | 5,983 | 
|Consumer:                                                 |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|Residential real estate first lien (1)                    |  |                    | 11,478 |  |                                 |   | 3     |                    |  |   | 7,466                          |  |  |   | 281   | 
|Residential real estate second lien and home equity lines |  |                    | 581    |  |                                 |   |      |                    |  |   | 791                            |  |  |   |      | 
|Consumer                                                  |  |                    |       |  |                                 |   |      |                    |  |   |                               |  |  |   |      | 
|                                                          |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|Total consumer                                            |  |                    | 12,059 |  |                                 |   | 3     |                    |  |   | 8,257                          |  |  |   | 281   | 
|Loans held-for-sale                                       |  |                    | 28,109 |  |                                 |   |      |                    |  |   |                               |  |  |   |      | 
|                                                          |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 
|Total nonperforming loans                                 |  | $                  | 51,696 |  |                                 | $ | 1,750 |                    |  | $ | 35,988                         |  |  | $ | 6,264 | 
|                                                          |  |                    |        |  |                                 |   |       |                    |  |   |                                |  |  |   |       | 



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

The decrease in nonaccrual commercial real estate loans resulted mainly from loans being reclassified as held-for-sale, some of which were subsequently sold in the bulk sale of loans that closed in
October. Nonaccrual construction and land loans decreased $6.4 million, due primarily to the sale of a $3.2 million land loan in Florida and reclassification to held-for-sale. Residential nonaccrual loans increased due mainly to a $4.1 million
mortgage loan in Texas.

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



35



---

##### Table of Contents

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

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

Net charge-offs for the first nine months of 2010 were $38.1 million, or 4.81% of average total loans on an annualized basis, compared with $11.2 million, or 1.28% of average total loans on an annualized
basis for the first nine months of 2009.



36



---

##### 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 Nine Months EndedSeptember 30,2010 |           |   | As of and forthe Year EndedDecember 31,2009 |  
|                                                                                          |  | (dollars in thousands)                              |          
|Average loans outstanding                                                                 |  | $                                                   | 1,060,214 |   |                                             | $ | 1,146,839 |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total loans outstanding at end of period                                                  |  | $                                                   | 1,036,094 |   |                                             | $ | 1,079,263 |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Allowance for loan losses at beginning of period                                          |  | $                                                   | 26,501    |   |                                             | $ | 25,105    |  
|Charge-offs:                                                                              |  |                                                     |           |   |                                             |   |           |  
|Commercial:                                                                               |  |                                                     |           |   |                                             |   |           |  
|Commercial                                                                                |  |                                                     | (944      | ) |                                             |   | (2,833    | )
|Commercial real estate                                                                    |  |                                                     | (24,513   | ) |                                             |   | (1,175    | )
|Real estate construction                                                                  |  |                                                     | (6,830    | ) |                                             |   | (6,780    | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total commercial                                                                          |  |                                                     | (32,287   | ) |                                             |   | (10,788   | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Consumer:                                                                                 |  |                                                     |           |   |                                             |   |           |  
|Residential real estate first lien                                                        |  |                                                     | (2,828    | ) |                                             |   | (2,767    | )
|Residential real estate second lien                                                       |  |                                                     | (2,614    | ) |                                             |   | (2,543    | )
|Home equity lines                                                                         |  |                                                     | (1,600    | ) |                                             |   | (1,820    | )
|Consumer installment - indirect                                                           |  |                                                     | (198      | ) |                                             |   | (656      | )
|Consumer other                                                                            |  |                                                     | (207      | ) |                                             |   | (78       | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total consumer                                                                            |  |                                                     | (7,447    | ) |                                             |   | (7,864    | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total charge-offs                                                                         |  |                                                     | (39,734   | ) |                                             |   | (18,652   | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Recoveries:                                                                               |  |                                                     |           |   |                                             |   |           |  
|Commercial:                                                                               |  |                                                     |           |   |                                             |   |           |  
|Commercial                                                                                |  |                                                     | 831       |   |                                             |   | 2,917     |  
|Commercial real estate                                                                    |  |                                                     | 17        |   |                                             |   |          |  
|Real estate construction                                                                  |  |                                                     | 50        |   |                                             |   | 6         |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total commercial                                                                          |  |                                                     | 898       |   |                                             |   | 2,923     |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Consumer:                                                                                 |  |                                                     |           |   |                                             |   |           |  
|Residential real estate first lien                                                        |  |                                                     | 304       |   |                                             |   | 110       |  
|Residential real estate second lien                                                       |  |                                                     | 195       |   |                                             |   | 70        |  
|Home equity lines                                                                         |  |                                                     | 100       |   |                                             |   | 131       |  
|Consumer installment - indirect                                                           |  |                                                     | 100       |   |                                             |   | 152       |  
|Consumer other                                                                            |  |                                                     | 31        |   |                                             |   | 2         |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total consumer                                                                            |  |                                                     | 730       |   |                                             |   | 465       |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Total recoveries                                                                          |  |                                                     | 1,628     |   |                                             |   | 3,388     |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Net charge-offs                                                                           |  |                                                     | (38,106   | ) |                                             |   | (15,264   | )
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Provision for loan losses                                                                 |  |                                                     | 32,572    |   |                                             |   | 16,660    |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|Allowance for loan losses at end of period                                                |  | $                                                   | 20,967    |   |                                             | $ | 26,501    |  
|                                                                                          |  |                                                     |           |   |                                             |   |           |  
|                                                                                          |  |                                                    
|Ratio of net charge-offs to average loans                                                 |  |                                                     | 4.81      | % |                                             |   | 1.33      | %
|Ratio of allowance for loan losses to period end loans (excluding loans held-for-sale)    |  |                                                     | 2.27      |   |                                             |   | 2.46      |  
|Ratio of allowance for loan losses to nonperforming loans (excluding loans held-for-sale) |  |                                                     | 88.89     |   |                                             |   | 73.64     |  

Securities

Total securities were $254.0 million as of September 30, 2010, a decrease of $3.9 million, or 1.5%, compared with $257.8 million as of
December 31, 2009. The decrease was due to a combination of calls or pay downs in the securities portfolio.



37



---

##### Table of Contents



Deposits

Our deposits averaged $1.2 billion for the nine months ended September 30, 2010, an increase of $50.1 million, or 4.4%, over average deposits for the
year ended December 31, 2009. As of September 30, 2010, core deposits (which consist of noninterest-bearing deposits, interest checking, money market and savings and time deposits less than $100,000) were $768.7 million, or 62.4%, of total
deposits, while time deposits $100,000 and greater and brokered deposits made up 22.4% of total deposits and deposits held-for-sale comprised 15.2%. As of September 30, 2010, total deposits increased $39.6 million, or 3.3%, to $1.2 billion
compared with total deposits as of December 31, 2009. The increase was due primarily to an increase in noninterest-bearing demand deposits and occurred notwithstanding the sale of $50.5 million of deposits in the second quarter of 2010.

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



|                                           |  |                                     |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|------------------------------------------ |  | ----------------------------------- | --------- |  | --------------------------- |  | ---- | -------------- |  | - | ----------- |  |  |  | ---- | -
|                                           |  | Nine Months EndedSeptember 30, 2010 |           |  | Year EndedDecember 31, 2009 | 
|                                           |  | AverageBalance                      |           |  | AverageRate                 |  |      | AverageBalance |  |   | AverageRate | 
|                                           |  | (dollars in thousands)              |          
|Noninterest-bearing deposits               |  | $                                   | 178,591   |  |                             |  |     | %              |  | $ | 152,873     |  |  |  |     | %
|Interest checking                          |  |                                     | 146,185   |  |                             |  | 0.30 |                |  |   | 186,440     |  |  |  | 0.48 |  
|Money market and savings                   |  |                                     | 252,601   |  |                             |  | 0.74 |                |  |   | 273,188     |  |  |  | 1.09 |  
|Time deposits less than $100,000           |  |                                     | 129,793   |  |                             |  | 2.45 |                |  |   | 200,493     |  |  |  | 3.33 |  
|                                           |  |                                     |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Core deposits                              |  |                                     | 707,170   |  |                             |  | 0.78 |                |  |   | 812,994     |  |  |  | 1.30 |  
|                                           |  |                                     |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Time deposits $100,000 and greater         |  |                                     | 254,514   |  |                             |  | 2.24 |                |  |   | 308,546     |  |  |  | 3.14 |  
|Brokered deposits                          |  |                                     | 24,524    |  |                             |  | 2.59 |                |  |   | 28,924      |  |  |  | 2.69 |  
|Noninterest-bearing deposits held-for-sale |  |                                     | 16,667    |  |                             |  |     |                |  |   |            |  |  |  |     |  
|Interest-bearing deposits held-for-sale    |  |                                     | 197,668   |  |                             |  | 1.74 |                |  |   |            |  |  |  |     |  
|                                           |  |                                     |           |  |                             |  |      |                |  |   |             |  |  |  |      |  
|Total deposits                             |  | $                                   | 1,200,543 |  |                             |  | 1.27 | %              |  | $ | 1,150,464   |  |  |  | 1.83 | %
|                                           |  |                                     |           |  |                             |  |      |                |  |   |             |  |  |  |      |  

Borrowings, Repurchase Agreements and Junior Subordinated Debentures

We utilize borrowings to supplement deposits in funding our lending and investing activities. These borrowings are typically advances from the Federal
Home Loan Bank of Dallas (FHLB), which have terms ranging from overnight to several years. All borrowings from the FHLB are collateralized by a blanket lien on Encore Banks mortgage-related assets. At September 30, 2010, our available
borrowing capacity with the FHLB was $203.9 million. Additionally, we borrow from customers using investment securities as collateral and have issued junior subordinated debentures to subsidiary trusts.

Our borrowings and repurchase agreements were $220.8 million as of September 30, 2010. The outstanding balance as of September 30, 2010
includes $207.6 million in long term advances and $13.2 million in repurchase agreements with clients. Included in the long term advances are $95.0 million of long term advances that have call provisions that are at the discretion of the FHLB which
could shorten the maturity of the borrowings.

Borrowings and repurchase agreements were $220.8 million as of September 30, 2010 compared
to $220.6 million as of December 31, 2009. During the nine months ended September 30, 2010, we refinanced approximately $52.5 million of FHLB advances which were treated as exchanges of debt. As part of those transactions, we incurred
prepayment penalties of $2.6 million, which were capitalized as part of the new advances and are being amortized over the life of the new advances.



38



---

##### Table of Contents



The following table summarizes our two
issues of junior subordinated debentures outstanding as of September 30, 2010:



|                          |  |                           |           |  |                                     |   |        |                                     |  |  |                   |   |                    |                      |                                      |                       |  |                   |        |  |  |  |           | 
|------------------------- |  | ------------------------- | --------- |  | ----------------------------------- | - | ------ | ----------------------------------- |  |  | ----------------- | - | ------------------ | -------------------- | ------------------------------------ | --------------------- |  | ----------------- | ------ |  |  |  | --------- | 
|Description               |  | Issuanceand CallDates (1) |           |  | TrustPreferredSecuritiesOutstanding |   |        | InterestRate as ofSeptember 30,2010 |  |  | Fixed/
Adjustable |   | Interest RateBasis |                      | JuniorSubordinatedDebt Owedto Trusts |                       |  | FinalMaturityDate |       
|(dollars in thousands)    | 
|                          |  |                           |           |  |                                     |   |       
|Encore Statutory Trust II |  |                           | 9/17/2003 |  |                                     | $ | 5,000  |                                     |  |  | 3.24              | % |                    | Adjustable quarterly |                                      | 3 month LIBOR + 2.95% |  | $                 | 5,155  |  |  |  | 9/24/2033 | 
|                          |  |                           |           |  |                                     |   |       
|Encore Capital Trust III  |  |                           | 4/19/2007 |  |                                     |   | 15,000 |                                     |  |  | 6.85              | % |                    | Fixed rate (2)       |                                      | 6.85%(2)              |  |                   | 15,464 |  |  |  | 4/19/2037 | 



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

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

Liquidity and Funding

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

Liquidity needs of a financial
institution can be met from either assets or liabilities. On the asset side, our primary sources of liquidity are cash and due from banks, federal funds sold, maturities of securities and scheduled repayments and maturities of loans. On the
liability side, our principal sources of liquidity are deposits, borrowed funds and the accessibility to money and capital markets. Client deposits are our largest source of funds. For the nine months ended September 30, 2010, our year-to-date
average deposits were $1.2 billion, or 73.4% of average total assets.

Shareholders Equity

Shareholders equity decreased $17.0 million, or 9.1%, to $169.7 million as of September 30, 2010 compared with $186.7 million as of
December 31, 2009, primarily due to our net loss.

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



39



---

##### Table of Contents



The following table presents capital
amounts and ratios for us and Encore Bank as of September 30, 2010:



|                        |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|----------------------- |  | ---------------------- | ------- |  | --------------------------- |  | ----- | ---------------------------------------------------------------------------- |  | - | ------ |  |  | ------ | ---- | - | ----- | - | ------- |  |  |  | ----- | -
|                        |  | Actual                 |         |  | For CapitalAdequacyPurposes |  |       | To Be Categorized asWell CapitalizedUnder Prompt CorrectiveAction Provisions | 
|                        |  | Amount                 |         |  | Ratio                       |  |       | Amount                                                                       |  |   | Ratio  |  |  | Amount |      |   | Ratio |  
|                        |  | (dollars in thousands) |        
|Encore Bancshares, Inc. |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Leverage                |  | $                      | 148,743 |  |                             |  | 9.18  | %                                                                            |  | $ | 64,807 |  |  |        | 4.00 | % |       |   | N/A     |  |  |  | N/A   |  
|Tier 1 risk-based       |  |                        | 148,743 |  |                             |  | 13.53 |                                                                              |  |   | 43,984 |  |  |        | 4.00 |   |       |   | N/A     |  |  |  | N/A   |  
|Total risk-based        |  |                        | 162,589 |  |                             |  | 14.79 |                                                                              |  |   | 87,968 |  |  |        | 8.00 |   |       |   | N/A     |  |  |  | N/A   |  
|                        |  |                        |         |  |                             | 
|Encore Bank, N.A.       |  |                        |         |  |                             |  |       |                                                                              |  |   |        |  |  |        |      |   |       |   |         |  |  |  |       |  
|Leverage                |  | $                      | 137,517 |  |                             |  | 8.49  | %                                                                            |  | $ | 64,791 |  |  |        | 4.00 | % |       | $ | 80,989  |  |  |  | 5.00  | %
|Tier 1 risk-based       |  |                        | 137,517 |  |                             |  | 12.53 |                                                                              |  |   | 43,886 |  |  |        | 4.00 |   |       |   | 65,829  |  |  |  | 6.00  |  
|Total risk-based        |  |                        | 151,342 |  |                             |  | 13.79 |                                                                              |  |   | 87,771 |  |  |        | 8.00 |   |       |   | 109,714 |  |  |  | 10.00 |  



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

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



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

(a) Evaluation
of Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

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

Part II  Other Information



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

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



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

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



|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 September 30, 2010. These shares were delivered to us by employees as
payment for taxes on the vesting of restricted stock issued under our 2000 Stock Incentive Plan and 2008 Stock Awards and Incentive Plan.



40



---

##### Table of Contents



|              |  |                                 |       |  |                             |   |      |                                                                              |  |  |                                                                            |  |  |  |   | 
|------------- |  | ------------------------------- | ----- |  | --------------------------- | - | ---- | ---------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------- |  |  |  | - | 
|Month in 2010 |  | Total Number ofShares Purchased |       |  | Average Price Paidper Share |   |      | Total Number ofShares Purchased asPart of PubliclyAnnounced Plansor
Programs |  |  | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms | 
|July          |  |                                 | 530   |  |                             | $ | 9.90 |                                                                              |  |  |                                                                           |  |  |  |  | 
|August        |  |                                 | 3,968 |  |                             |   | 8.71 |                                                                              |  |  |                                                                           |  |  |  |  | 
|September     |  |                                 | 430   |  |                             |   | 6.22 |                                                                              |  |  |                                                                           |  |  |  |  | 
|              |  |                                 |       |  |                             |   |      |                                                                              |  |  |                                                                            |  |  |  |   | 
|Total (1)     |  |                                 | 4,928 |  |                             | $ | 8.62 |                                                                              |  |  |                                                                           |  |  |  |  | 
|              |  |                                 |       |  |                             |   |      |                                                                              |  |  |                                                                            |  |  |  |   | 



|(1) | The 4,928 shares repurchased were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes on
the vesting of restricted stock under our 2000 Stock Incentive Plan and 2008 Stock Awards and Incentive Plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Not
applicable



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



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

Not applicable



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



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



41



---

##### Table of Contents



SIGNATURES

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



|                 |  |  |  |                                                                                   
|---------------- |  |  |  | ----------------------------------------------------------------------------------
|                 |  |  |  | Encore Bancshares, Inc.                                                           
|                 |  |  |  | (Registrant)                                                                      
|                 |  | 
|November 5, 2010 |  |  |  | /s/ James S. DAgostino, Jr.                                                      
|(Date)           |  |  |  | James S. DAgostino, Jr., Chief Executive Officer                                 
|                 |  | 
|November 5, 2010 |  |  |  | /s/ L. Anderson Creel                                                             
|(Date)           |  |  |  | L. Anderson Creel, Chief Financial Officer, Executive Vice President and
Treasurer



42