The leadership at Encore Bank anticipated expenses would outpace income during 2019-22 because the Little Rock venture was operating in fast-track growth mode. However, the up-and-down quarterly performance envisioned to even out during 2023 didn’t.
While growing into the 285th-largest bank in the United States during the past 5½ years, Encore posted 12 profitable quarters versus 10 unprofitable ones. The combined result of those 22 quarters is a loss of $11 million.
A string of 11 interest rate hikes by the Federal Reserve during March 2022-July 2023 brought additional pressure to bear on the bank’s profitability.
“It’s been a roller-coaster ride and, in hindsight, taught us a lot,” said Burt Hicks, president/chief strategy and growth officer of Encore Bank.
“The main thing I would say is we learned to really drill down on the quality of our balance sheet, both on the liability side and the asset side,” said Phillip Jett, Encore’s chairman and CEO. “We need to make sure we build a balance sheet that can withstand interest rate swings.”
According to its two top executives, the development of Encore entered its second phase this year with a shift from building critical mass to delivering performance.
“Our focus the last six months is on profitability,” Hicks said. “We are not celebrating, but we are trending in the right direction.”
“For now, we’re really hyperfocused on profitability and efficiencies to become and maintain being a high-performance bank,” Jett said.
The bank posted a $1.8 million profit in the second quarter after recording a $1.6 million loss in the first quarter. How are third-quarter earnings shaping up days away from closing the books on Sept. 30?
“We fully expect, based on July and August being in the bag, to be significantly better than the second quarter,” Jett said.
Formerly Encore’s vice chairman and chief banking officer, Jett was appointed to take over the helm this year after the unexpected departure of Chris Roberts, who resigned as chairman and CEO on April 30. Encore’s leaders declined to discuss the exodus of Roberts during a recent interview.
Roberts, Jett and Hicks guided the Capital Bank-Encore Bank transformation that took a $161 million-asset local, single-office operation and turned it into today’s $3.9 billion-asset lender with a regional footprint in 17 markets across seven states.
That growth was backed with three private stock offerings totaling about $368 million: $57 million in 2019, $139 million in 2020 and $172 million in 2022.
A fourth stock offering for Encore Bancshares was registered on Sept. 8, 2023. Bank officials declined to provide a status report on that $75 million offering.
Roberts, Jett and Hicks are among the largest stockholders in Encore Bancshares. Together with their spouses, Roberts controls a 1.14% stake, Jett 1.04% and Hicks 0.59%.
During the 2022 offering, Encore Bancshares attracted its first institutional investor: Patriot Financial Partners Ltd. of Radnor, Pennsylvania. The private equity firm became Encore’s largest stockholder with 102,041 shares, a 5.78% stake.
Accompanying that investment, Patriot Financial gained a seat on the board of directors of Encore Bancshares and Encore Bank. Kelly Brown, a partner at Patriot Financial, joined those boards in January 2023.
Two other top 10 shareholders serve on the Encore Bancshares board of directors: Michael Mosley of Sheridan, former president of Packaging Inks for Flint Group, 20,496 shares (1.16%); and Thomas Fuqua III of Texarkana, Texas, executive vice president of Family Liberty Life Insurance Co., 18,887 shares (1.07%).
Another top 10 shareholder serves on the Encore Bank board of directors: Garrett Frost of Marianna, president and CEO of Frost Flying Inc., 29,302 shares (1.66%). He owns his stake through Frost Financial Holdings.
According to a corporate tally, 85% of Encore’s 300 or so employees own shares.
Hicks described Encore as a growth stock, not an income-producing stock, and that’s how it was sold to investors.
“We’re not saying dividends are not in the future, but capital is precious,” he said of the intention to retain earnings for now.
Jett said he encouraged investors by noting: “You’re going to need to be patient, but we’re building toward quality.”
In addition to its network of 18 full-service branches, Encore also operates Specialty Finance office, focusing on construction equipment, trucks/trailers and franchise financing, opened January 2021 in Grapevine, Texas.
2019 |
2020 |
2021 |
||||||||||
| 1Q | 2Q | 3Q | 4Q | 1Q | 2Q | 3Q | 4Q | 1Q | 2Q | 3Q | 4Q | |
Total Assets |
$164,928 | $196,952 | $247,152 | $316,713 | $407,966 | $584,875 | $681,412 | $836,548 | $908,083 | $1,129,791 | $1,298,422 | $1,632,951 |
Total Loans |
$77,385 | $109,041 | $174,121 | $262,981 | $330,419 | $385,521 | $432,550 | $537,806 | $639,194 | $828,963 | $992,943 | $1,165,112 |
Net Income* |
-$234 | -$1,212 | -$2,331 | -$2,877 | $331 | $893 | $1,929 | $551 | $809 | $258 | $236 | -$718 |
Equity Capital |
$15,903 | $30,741 | $49,755 | $50,463 | $51,021 | $54,278 | $54,920 | $75,005 | $90,096 | $117,840 | $140,066 | $173,302 |
Salary/Benefits* |
$576 | $1,749 | $3,137 | $4,742 | $1,452 | $3,254 | $5,697 | $9,398 | $4,810 | $9,919 | $16,283 | $25,028 |
Staff |
18 | 28 | 35 | 46 | 46 | 61 | 88 | 113 142 | 170 192 | 223 | 246 | |
Efficiency Ratio |
124.69% | 151.29% | 145.54% | 134.46% | 83.52% | 72.90% | 72.71% | 81.89% | 92.83% | 90.67% | 90.55% | 91.52% |
2022 |
2023 |
2024 |
|||||||
| 1Q | 2Q | 3Q | 4Q | 1Q | 2Q | 3Q | 4Q | 1Q | |
Total Assets |
$1,815,558 | $2,431,091 | $2,795,189 | $3,552,312 | $3,809,901 | $4,025,348 | $4,187,194 | $3,995,766 | $3,962,516 |
Total Loans |
$1,402,203 | $1,957,606 | $2,300,084 | $2,552,025 | $2,704,045 | $2,957,016 | $3,082,292 | $3,237,863 | $3,260,654 |
Net Income* |
-$216 | -$1,868 | $816 | -$1,511 | $2,072 | $1,035 | -$1,280 | -$7,908 | -$1,646 |
Equity Capital |
$173,405 | $173,108 | $241,528 | $279,313 | $280,821 | $275,762 | $249,202 | $275,174 | $277,602 |
Salary/Benefits* |
$8,500 | $17,961 | $28,112 | $39,244 | $11,474 | $20,915 | $30,735 | $42,514 | $12,117 |
Staff |
289 | 306 | 303 | 313 | 333 | 326 | 331 | 328 | |
Efficiency Ratio |
90.67% | 83.56% | 81.51% | 85.40% | 107.61% | 105.94% | 107.63% | 113.55 % | 116.25% |
*Quarterly profit or loss. Source: Federal Deposit Insurance Corp. All dollars in thousands except where noted.
Until July 3, the headcount of full-service locations was 19. That’s when the office in Nashville, Tennessee, was closed.
Jett said performance was the deciding factor.
“We made a lot of tough decisions along the way, and we needed to make a decision about an underperforming office,” he said.
Opened on June 20, 2023, Encore’s Nashville office held deposits of $62 million at the end of its brief existence.
That one-year total represented the ninth-largest deposit total among the bank’s locations.
Encore flirted with two other markets but didn’t establish full-service offices in either. The bank opened a loan production office in Birmingham, Alabama, on Nov. 11, 2021, and closed it on Nov. 30, 2022. Encore announced a Raleigh, North Carolina, office on July 25, 2022, but it didn’t open.
The bank is looking for every office to build its deposit base to help support loan growth, which has been stagnant the last three quarters.
“We expect our markets to raise enough deposits to supplement their lending activity,” Hicks said. “We’re not chasing anything [in terms of hard-and-fast goals]. We want to build a web of business in every market we’re in.”
That includes Encore wading into banking services for title companies through its Title Solutions program, and Association Banking, helping community associations manage their money.
“We’re going to give a different experience,” Hicks said. “We’re building a different kind of bank.”
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