SGBK Stonegate Bank

Stonegate Bank (OTCBB:SGBK):

Fourth Quarter 2010 highlights:

• $636 million in assets
• 20 straight quarters of profitability
• Organic loan growth of 16%
• Organic non- interest bearing deposit growth of 24%
• Net income of $925,000 for the Fourth Quarter of 2010
• Tier 1 capital ratio of 21% at December 31, 2010

Net Income:

Stonegate Bank (OTCBB:SGBK) reported net income of $925,000 or 12 cents per share for the fourth quarter of 2010 as compared to net income of $6,133,000 or $1.12 per share in the fourth quarter of 2009. The decrease in net income is attributable to the bargain purchase gains recognized from the purchase of Hillcrest and Partners Banks from the FDIC in the fourth quarter of 2009. The bank earned $3,519,500 or 45.6 cents a share for fiscal year 2010 as compared to $7,115,000 or $1.29 a share for fiscal year 2009.

Income and Expenses:

Total interest income increased $1.1 million from $6.7 million in the fourth quarter of 2009 to $7.8 million in the fourth quarter of 2010. This is due to the increase in total loans of $59 million and $36 million in U.S. Government agencies. Total interest expense decreased from $2.2 million in the fourth quarter of 2009 to $1.9 million during the fourth quarter of 2010. This decrease occurred even as deposits grew by $45 million. Net interest income improved from $4.5 million in the fourth quarter of 2009 to $5.9 million in the fourth quarter of 2010. This increase was the direct result of the growth of the Bank. Total non-interest income decreased from $9.4 million in the fourth quarter of 2009 to $.3 million in the fourth quarter of 2010. However, if the gains associated with the FDIC assisted acquisitions are removed non-interest income would have increased slightly from $267,000 in the fourth quarter of 2009 to $315,000 in the fourth quarter of 2010.

Non-interest expense increased from $13.8 million for fiscal year 2009 to $16.1 million for the fiscal year 2010. The largest increases are as follows:

    2009   2010 Salaries and Benefits   $6,590,000   $8,031,000 Occupancy/Equipment Expense $2,279,000 $2,604,000 Legal   $590,000   $1,015,000  

These increases were the result of several factors. Salaries and occupancy grew in 2010 as a result of the addition of our Naples and Coral Gables offices. Legal/professional fees increased due to collection costs associated with various nonperforming assets as well as due-diligence costs associated with the pending acquisition of Southwest Capital Bank.

Margin and Cost of Funds:

Total cost of funds declined from a 1.59% September month to date average to 1.44% month to date average in December. Management believes that the cost of funds will continue to decline as higher cost funding sources are eliminated or reduced. Stonegate Bank’s net interest margin decreased from a September month to date average of 4.27% to a December month to date average of 4.02%. This was the result of the Bank increasing total deposits at a faster rate than earning assets.

Balance Sheet and Capital:

Total assets grew from $551 million on December 31, 2009 to $636 million on December 31, 2010, an $85 million increase. Total loans increased $59 million from $362 million as of December 31, 2009 to $421 million as of December 31, 2010. Total deposits increased $45 million from $427 million on December 31, 2009 to $472 million on December 31, 2010. Approximately 13.2% of total deposits are non-interest bearing. Traditional brokered deposits were $1.0 million on December 31, 2010. Total capital grew from $64.5 million at year end 2009 to $94.9 million at year end 2010. This resulted in an undiluted book value of $12.32 per share at year end 2010.

Asset Quality:

Past Dues and

Non-Performing

 

3/31/10

 

6/30/10

 

9/30/10

 

12/31/10

Total loans   $ 360,727   $ 368,705   $ 400,238   $421,270 30 days past due 1,035 - 481 870 60 - 89 days past due 401 2,280 227 484 NPAs 10,974 9,760 8,553 5,639 REO   4,012   4,783   5,616   5,485  

The Bank’s total non-performing assets decreased from $8.5 million on September 30, 2010 to $5.6 million at December 31, 2010. Non-performing assets represent 1.3% of total loans and .88% of total assets. Of the $5.6 million non-performing loans $3 million have payments that are current and are expected to move to accrual status during the first six months of 2011.

Management believes that all non-performing assets and REO are written down to fair market value. Real estate owned decreased slightly from $5.6 million on September 30, 2010 to $5.4 million at December 30, 2010. Approximately $2.4 million is currently under contract and is expected to close by the 3rd quarter of 2011. There will be a small recovery on this asset sale. The Bank’s loan loss reserve increased from $9.56 million on September 30, 2010 to $10.54 million at December 31, 2010. This reserve represents 187% of all non-performing loans and 2.50% of total loans. Total loans past due 30 days or more increased from $708,000 on September 30, 2010 to $1.3 million on December 31, 2010.

Management Comments:

According to David Seleski, President and CEO of Stonegate, “The Bank experienced significant organic growth in the second half of 2010. Based on our current pipelines we expect this trend will continue in 2011. One of our major goals in 2011 is to continue to leverage our existing offices and staff via this organic growth without adding any additional offices or increasing staff significantly. We rank 12th in the state of Florida in terms of assets per employee and have a current efficiency ratio of 63.7%. We want to continue to improve upon those efficiencies as well as continue to leverage our capital.

“The credit market appears to be improving and this is reflective in the Bank’s overall credit quality as measured by non-performing assets. That being said, we are being diligent in continuing to evaluate our existing portfolio as well as continuing to decrease non-performing assets and REO.

“There appears to be improvement in the Southeast Florida economy and we believe that Stonegate Bank is ideally positioned both in terms of capital and staffing to take advantage of any opportunities related to this improvement. This should only enhance the performance of the Bank in 2011,” said Seleski.

The Bank cautions that certain statements contained in this press release are “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, which statements are made pursuant to the “safe harbor” provisions of such Act. These forward-looking statements describe future plans or strategies and may include the Bank’s expectations of future financial results. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and similar expressions identify forward-looking statements. The Bank’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes is inherently uncertain. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to, changes in general market interest rates, changes in general economic conditions and those specific to the Bank’s market area, legislative/regulatory changes, monetary and fiscal policies of the U.S. Treasury and the Federal Reserve, changes in the quality or composition of the Bank’s loan portfolios, demand for loan products, changes in deposit flows, real estate values, and competition and other economic, competitive, governmental, regulatory and technological factors affecting the Bank’s operations, pricing, products and services. The Bank makes periodic filings to the Federal Deposit Insurance Corporation which contain various Bank financial information, copies of which are available from the Bank without charge. The Bank disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained in this release to reflect future events or developments.

STONEGATE BANK

Balance Sheet As of December 31, 2010   Unaudited   (In Thousands)  

Assets

Cash and Due From Banks $ 27,422 Federal Funds Sold 26,710 Investment Securities 139,079 Commercial Loans 44,209 Commercial Real Estate Loans – Owner Occupied 118,170 Commercial Real Estate Loans – Other 121,514 Construction Loans 50,622 Residential 1-4 Family Loans 65,760 HELOCs 16,967 Consumer Loans   4,028 Gross Loans 421,270 Allowance for Loan Losses   (10,546) Net Loans 410,724 Fixed Assets 4,434 Other Assets   28,452 Total Assets $ 636,821  

 

Liabilities

Non-Interest Bearing Deposits $ 62,682 NOW Accounts 38,273 Money Market Accounts 191,903 Savings Accounts 1,532 CDARS Reciprocal Deposits 130,220 Certificates of Deposits   48,108 Total Deposits 472,718 Repurchase Agreements 42,135 FHLB and Other Borrowings 20,000 Other Liabilities   7,026 Total Liabilities 541,879   Total Capital   94,942 Total Liabilities and Capital $ 636,821  

STONEGATE BANK

Income Statement For Period Ended December 31, 2010   Unaudited   (In Thousands)   Interest Income $ 30,535 Interest Expense   8,081 Net Interest Income 22,454 Less: Provision for Loan Losses   4,977 Net Interest Income after Provision for Loan Losses 17,477 Non-Interest Income 2,868 Realized Gains (Losses) on AFS Securities 1,251 Less: Salaries and Benefits Expense 8,031 Occupancy and Equipment Expense 2,604 Data Processing Expense 718 Legal and Professional Expense 1,385 FDIC Assessments 983 Loan and OREO Expenses 961 Other Expense   1,446 Total Non-Interest Expense 16,128 Net Income Before Income Taxes 5,468 Income Taxes   1,948 Net Income $ 3,520