HOUSTON, July 25, 2008 (PRIME NEWSWIRE) -- Encore Bancshares, Inc. (Nasdaq:EBTX) today announced its financial results for the second quarter of 2008.
* Net interest margin improved 46 basis points to 3.13% compared
with the second quarter of 2007 and 19 basis points compared with
the first quarter of 2008.
* Net interest income up 35.6% compared with the second quarter of
2007.
* Noninterest expense fell 5.2% compared with the second quarter of
2007.
* Nonperforming assets declined from March 31, 2008, reflecting the
resolution of a $6.3 million law firm loan.
* Tier 1 Capital was $146.3 million or 12.82% at June 30, 2008.
"I am very pleased with the growth in our net interest margin and the growth of our banking and wealth management businesses," said James S. D'Agostino, Jr., Chairman and Chief Executive Officer. "We will continue to focus on achieving our goal of 1% return on assets for 2009, while managing the challenges of the current credit cycle. With our substantial capital base, management believes we are well positioned to continue to build a strong and profitable company."
Earnings
For the three months ended June 30, 2008, net earnings were $481,000, or $0.04 per diluted share, compared with $1.7 million, or $0.20 per diluted share for the same period of 2007. During the quarter, a $6.3 million loan to a Houston law firm, previously discussed in our filings since July 17, 2007, was resolved resulting in a charge-off of $2.1 million. Subsequently, we considered it prudent to build the allowance for loan losses due to the challenges of the current credit environment. Excluding the $2.1 million credit reserve build, net earnings were $1.9 million, or $0.18 per diluted share. Further, net earnings reflected a $2.8 million improvement in net interest income and lower expenses over the same period of 2007, partially offset by a $1.9 million decrease in mortgage banking income as a result of the strategic decision to discontinue second mortgage sales beginning in the third quarter of 2007.
For the six months ended June 30, 2008, net earnings were $1.7 million, or $0.15 per diluted share, compared with $3.4 million, or $0.42 per diluted share for the same period of 2007. Net interest income increased by $5.0 million, but this increase was offset by a $3.4 million increase in the provision for loan losses and a $4.3 million decrease in noninterest income, primarily related to a decrease in mortgage banking earnings. The change in net earnings was different than the earnings per share primarily because of the additional shares issued in our initial public offering in the third quarter of 2007.
Net Interest Income
Net interest income for the second quarter of 2008 was a record $10.8 million, an increase of $2.8 million, or 35.6%, compared with the second quarter of 2007. The net interest margin expanded 46 basis points to 3.13%, reflecting an improved asset and liability mix, as we continued to replace low yielding assets with higher yielding loans. In addition, we benefited from a steepening yield curve which allowed us to decrease the pricing of our deposits by an average rate that was more than the decline in average yield on our earning assets. For the six months ended June 30, 2008, net interest income was $20.7 million, an increase of $5.0 million, or 32.2%, compared with the same period of 2007. The net interest margin improved 42 basis points to 3.03%, due primarily to improvements in the asset and liability mix. On a linked quarter basis (compared with the immediately preceding quarter), net interest income rose $966,000, or 9.8%, and the net interest margin improved 19 basis points. The margin increase was due to a combination of a continued improvement in our asset and liability mix and the steepening of the yield curve.
Noninterest Income
Noninterest income was $6.2 million for the second quarter of 2008, a decrease of $2.6 million, or 29.4%, compared with the same period of 2007. Noninterest income for the six months ended June 30, 2008 was $12.8 million, a decrease of $4.3 million, or 25.3%, compared with the same period of 2007. The decrease for both periods was due primarily to lower mortgage banking income, resulting from our decision to discontinue second mortgage sales in the third quarter of 2007, and $405,000 in write downs of other real estate owned, which is recorded in real estate operations.
Noninterest Expense
Noninterest expense was $12.6 million for the second quarter of 2008, a decrease of $692,000, or 5.2% compared with the same period of 2007. The decrease in expenses was due in part to lower compensation, which was a result of last year's expense reduction initiative. The second quarter of 2007 also included a nonrecurring charge for early debt extinguishment which resulted from refinancing trust preferred securities. Excluding the 2007 nonrecurring charge, second quarter 2008 noninterest expense was lower by 2.3%. Noninterest expense was $25.9 million for the six months ended June 30, 2008, up $123,000, or 0.5% compared with the same period of 2007.
Segment Earnings
On a segment basis, our wealth management group showed net earnings of $1.3 million for the second quarter of 2008, an increase of $389,000, or 44.5%, compared with the prior year quarter. The growth in net earnings was due primarily to a 2.0% growth in assets under management and lower expenses. Our banking segment lost $832,000 for the second quarter of 2008, compared with net earnings of $897,000 for the same period of 2007. Net interest income improved $2.9 million, but this increase was more than offset by lower mortgage banking income and the higher loan loss provision. Our insurance group had net earnings of $277,000 for the second quarter of 2008, compared with $384,000 for the same period in 2007. The decrease in net earnings was due primarily to a soft property and casualty market, resulting in lower commission fee income.
Loans
Period end loans were $1.2 billion at June 30, 2008, up $216.3 million, or 22.7%, compared with June 30, 2007, and up $12.7 million, or 1.1%, on a linked quarter basis. Average loans were $1.2 billion, for the second quarter of 2008, an increase of $232.6 million, or 24.8%, compared with the same period of 2007.
Deposits
Period end deposits were $1.1 billion at June 30, 2008, up $34.5 million, or 3.4%, compared with June 30, 2007, and down $56.4 million, or 5.1% on a linked quarter basis. Deposits decreased during the second quarter due primarily to the strategic decision to focus on profitability and not match some competitors' aggressive deposit pricing. Noninterest-bearing deposits were $123.6 million at June 30, 2008, an increase of $17.5 million, or 16.5%, compared with June 30, 2007. Average deposits were $1.1 billion for the second quarter of 2008, an increase of $99.3 million, or 10.0%, compared with the same period of 2007.
Credit Quality and Capital Ratios
The provision for loan losses was $3.8 million in the second quarter of 2008, an increase of $2.8 million compared with the same period of 2007. The increase in the provision reflected growth in the loan portfolio, the overall credit environment, and higher net charge-offs during the quarter. Net charge-offs for the second quarter of 2008 were $3.3 million, or 1.14% of average total loans on an annualized basis, compared with $567,000, or 0.24% of average total loans for the second quarter of 2007. Net charge-offs included a $2.1 million partial charge-off of a loan to a Houston law firm. Excluding this charge-off, net charge-offs were 0.41% of average total loans on an annualized basis. The allowance for loan losses was $12.1 million, or 1.03% of total loans at June 30, 2008, compared with $10.2 million, or 1.07% of total loans at June 30, 2007.
At June 30, 2008, nonperforming assets, including loans past due 90 days or more and still accruing, were $14.4 million, or 1.23% of total loans and investment in real estate, compared with $16.5 million, or 1.42% of total loans and investment in real estate at March 31, 2008, and $13.1 million, or 1.37% of total loans and investment in real estate at June 30, 2007. At June 30, 2008, non-accrual loans were $12.1 million, compared with $14.1 million at March 31, 2008. The decrease in non-accrual loans was due primarily to the resolution of a $6.3 million loan to a Houston law firm that was previously mentioned. Loans 90 days past due or more and still accruing were $240,000 at June 30, 2008 compared with $283,000 at March 31, 2008. Investment in real estate was $2.1 million at June 30, 2008, the same as March 31, 2008.
As of June 30, 2008, our Tier 1 risked based, total risked based, and leverage capital ratios were 12.82%, 13.87% and 10.07%, respectively, and Encore Bank was considered "well capitalized" pursuant to regulatory capital definitions.
Conference Call
A conference call will be held on Friday, July 25, 2008 at 10:00 a.m., Central time, to discuss second quarter 2008 results. A question and answer session will follow the prepared remarks. Individuals may access the call by dialing 1-877-440-5786, or access the live webcast by visiting www.encorebank.com/investorrelations.shtml
About Encore Bancshares, Inc.
Encore Bancshares, Inc. is a financial holding company headquartered in Houston, Texas and offers a broad range of banking, wealth management and insurance services through Encore Bank, N.A. and its subsidiaries. Encore Bank operates 11 private client offices in the Greater Houston area and six in southwest Florida. Headquartered in Houston and with $1.5 billion in assets, Encore Bank builds relationships with professional firms, privately-owned businesses, investors and affluent individuals. Encore Bank offers a full range of business and personal banking products and services, as well as financial planning, wealth management, trust and insurance products through its trust division, Encore Trust, and its subsidiaries Linscomb & Williams and Town & Country Insurance. Products and services offered by Encore Bank's affiliates are not FDIC insured. The Company's common stock is listed on the NASDAQ Global Market under the symbol "EBTX".
The Encore Bancshares, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4257
This press release contains certain financial information determined by methods other than in accordance with GAAP. Encore's management believes these non-GAAP financial measures provide information useful to investors in understanding our financial results and facilitates comparisons with the performance of peers within the financial services industry. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP.
This press release contains certain forward-looking information about Encore Bancshares that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially from those expressed in or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: competitive pressure among financial institutions; our ability to expand and grow our businesses and operations and to realize the cost savings and revenue enhancements expected from such activities; a deterioration of credit quality or a reduced demand for credit; changes in the interest rate environment; the continued service of key management personnel; our ability to attract, motivate and retain key employees; general economic conditions, either nationally, regionally or in the market areas in which we operate; legislative or regulatory developments or changes in laws; changes in the securities markets and other risks that are described from time to time in our 2007 Annual Report on Form 10-K and other reports and documents filed with the Securities and Exchange Commission.
Encore Bancshares, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(Unaudited, amounts in thousands, except per share data)
As of and for the As of and for the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Earnings Statement Data:
Interest income $ 20,065 $ 19,675 $ 40,597 $ 39,155
Interest expense 9,220 11,677 19,873 23,477
-------- -------- -------- --------
Net interest income 10,845 7,998 20,724 15,678
Provision for loan losses 3,777 945 5,278 1,845
-------- -------- -------- --------
Net interest income after
provision for loan losses 7,068 7,053 15,446 13,833
Noninterest income 6,160 8,721 12,837 17,176
Noninterest expense 12,597 13,289 25,874 25,751
-------- -------- -------- --------
Net earnings before income
taxes 631 2,485 2,409 5,258
Income tax expense 150 827 758 1,825
-------- -------- -------- --------
Net earnings $ 481 $ 1,658 $ 1,651 $ 3,433
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Common Share Data:
Basic earnings per share $ 0.05 $ 0.22 $ 0.17 $ 0.45
Diluted earnings per share 0.04 0.20 0.15 0.42
Book value per share 15.65 14.03 15.65 14.03
Tangible book value per share 12.30 9.60 12.30 9.60
Average common shares
outstanding 9,886 7,559 9,866 7,557
Diluted average common shares
outstanding 10,780 8,200 10,747 8,166
Shares outstanding at end of
period 10,234 7,921 10,234 7,921
Selected Performance Ratios:
Return on average assets 0.13% 0.51% 0.23% 0.53%
Return on average equity 1.21% 6.07% 2.08% 6.39%
Return on average tangible
equity 1.54% 8.94% 2.66% 9.48%
Net interest margin 3.13% 2.67% 3.03% 2.61%
Efficiency ratio 72.97% 78.07% 75.98% 76.68%
Noninterest income to total
revenue 36.22% 52.16% 38.25% 52.28%
Encore Bancshares, Inc.
