Roughly 425 new investors and $50 million later, Encore Bank is still in a growth mode.
The Little Rock-based bank, which received new ownership and a new name less than a year ago, has been adding employees, expanding its investor base, and positioning itself for more asset growth in the last several months.
“Capital ultimately drives, for a bank and the regulatory environment that we operate in, it will do a couple things,” said Burt Hicks, director, senior executive vice president, chief operating officer and general counsel for Encore Bank and its holding company, Capital Bancshares.
Hicks said the injection of capital investment in the former Capital Bank will set its legal lending limit and should allow for participation in loans up to $10 million on its own. It also means Encore Bank is well-capitalized in regulators’ minds, which will allow for future growth through earnings as high as $600 million in assets. Today, Encore Bank has approximately $344 million in assets.
In a letter to investors last month, Encore Bank officials said the $50 million raised was “the largest one-time equity raise for a privately held bank in the history of the state of Arkansas,” noting that the previous record was $44 million.
While 425 new investors came into the fold, 25 previous investors in the former Capital Bank remained, bringing the total investor base to roughly 450. Also, 21 employees were part of the new group of investors totaling $5.3 million of the capital raise. Eleven external directors invested a total of $7.9 million. Encore officials had set a goal at the beginning of the capital campaign to add a total of 300 new shareholders.
“From the beginning, we felt it was very important that as many of our employees as possible and all of our directors invested in the bank,” the investor letter said. “From a shareholder perspective, we believe this level of insider ownership is extremely positive because this ensures our decisions will always be made with you, our shareholder, in mind.”
Last May, Encore Bank said it would eye five core markets: Little Rock, Northwest Arkansas, Jonesboro (Northeast Arkansas), Nashville and Dallas. Hicks says they raised capital from all of those markets with Central Arkansas and Jonesboro (Northeast Arkansas) leading the way.
Encore Bank is led by several bank veterans including former Simmons Bank executive Chris Roberts, former IberiaBank leader Phillip Jett, and Hicks, who filled a number of executive roles at Simmons Bank over a five-year period.
In recent months, they’ve added bankers in Northeast Arkansas, Northwest Arkansas (including a new Rogers branch), and just this week the bank promoted David Bush to Central Arkansas Regional President.
“David’s leadership and experience made him the absolute right fit for regional president, and we are confident in his abilities to lead Central Arkansas. Encore Bank is fortunate to have people like David who are committed to our clients and community,” Jett, president of the bank, said in a news release announcing Bush’s promotion.
There are 45 employees with the company.
Encore executives refer to the bank as a “boutique private bank with a commercial focus.” Hicks said they want to “bank our shareholders first and foremost,” which includes real estate investors, medical professionals, and small business owners.
With the capital raise behind them, it’s time to pivot to that next phase of growth, which will entail bringing in business loans, consumer loans, and deposits.
“We now get to go put on our banker hats full time,” Hicks said. “We’ve recruited some great teams and some great professionals across all three markets. We’ve developed a strategy and a strategic plan. Now it’s time to go execute.”
In its investor letter, Encore officials disclosed they were carrying a $4.9 million loss as of November 30, 2019. There were a number of one-time costs associated with personnel, severance pay, marketing and legal expenses, and some legacy bond impairments and losses.
“We do not intend to minimize this year’s loss,” the letter reads. “We simply want to ensure that you, as an investor of the bank, understand there is much more to it than meets the eye. Had we not moved into Northeast and Northwest Arkansas, we would have likely achieved profitability on a monthly basis at some point in the third quarter. Even having made these market expansions, there is a decent chance we will be profitable on a monthly basis before year-end.”
“Regardless, we made those decisions through a long-term, strategic lens, which is exactly how we will make all decisions. We firmly believe that Encore Bank will be a top performing bank by 2021 so long as we continue to operate and manage with that focus,” the letter further stated.
Financial highlights of the last year include paying off its $4.5 million line of credit and a number of improvements on the bank’s balance sheet as of the end of November 2019. Since December 2018, deposits are up $91 million (+83.7%); loans have increased $161.2 million (+212.9%); and assets have risen by $134.4 million (+83.8%).
The bank’s Tier 1 capital ratio has improved from 9.3% to 16.8% during that 11-month span.
There may be other markets to reach into, although there is plenty in the five markets they’ve identified. Hicks said interested parties have reached out but they’re not in a hurry to move outside of their targeted areas. There will be a focus on the balance sheet and getting it in its strongest position, he said. With the current growth mode and the investments needed to bring people on board, it could take several quarters to reach internal goals.
“But we feel really, really good about the position, the balance sheet and both the loan and deposit pipeline we have in place today,” Hicks said.