Stonegate Bank Announces Fourth Quarter 2015 Operating Results

POMPANO BEACH, FL--(Marketwired - Jan 28, 2016) - Stonegate Bank (NASDAQ: SGBK) ("Stonegate") reported net income of $7.3 million for the fourth quarter of 2015 or $0.56 per diluted common share, as compared to net income of $6.8 million for the third quarter of 2015 or $0.53 per diluted common share.

Key highlights for the fourth quarter:

• Loans: Total loans, net of discounts and deferred fees, grew $19.5 million during the fourth quarter of 2015 to $1.86 billion at December 31, 2015, a result of net organic loan growth during the fourth quarter. Commercial real estate ("CRE") comprised 48% of new loan originations for the fourth quarter of 2015, based upon the outstanding balance as of December 31, 2015. Residential loans accounted for 28% of the new loan originations; 14% of the new originations were construction; commercial and industrial ("C&I") was 9% of new originations with the remaining balance in consumer and other loans. The loan production for the current quarter was comprised of 61% variable rate loans, with approximately 48% of the variable rate loans tied to LIBOR. Total organic loan growth for the twelve months ended December 31, 2015 was approximately 9.0%.
  
  
• Asset Quality: Total loans past due 30 - 89 days, excluding nonaccrual loans, were $864,000 at December 31, 2015, a decrease of $2.0 million from September 30, 2015. Nonaccrual loans were $6.6 million at December 31, 2015, or 0.36% of total loans, up from $6.4 million at September 30, 2015, or 0.35% of total loans. Other real estate owned was $1.4 million at December 31, 2015, a decrease of $1.2 million from September 30, 2015.
  
  
• Net Interest Income and Margin: Net interest income, on a tax equivalent basis, decreased $888,000 for the three months ended December 31, 2015 as compared to the three months ended September 30, 2015. Net interest income totaled $21.8 million for the three months ended December 31, 2015. The net interest margin, on a tax equivalent basis, declined to 4.06% for the fourth quarter of 2015 as compared to 4.32% for the third quarter of 2015 but was an increase over the net interest margin of 3.78% for the quarter ended December 2014. The decrease from the third quarter of 2015 to the fourth quarter of 2015 in the margin was primarily a result of the nonaccretable discounts that were recognized during the third quarter.
  
  
• Noninterest Expense: Noninterest expense decreased to $12.3 million for the three months ended December 31, 2015 from $12.4 million for the three months ended September 30, 2015.
  
  
• Capital: Stonegate remained well-capitalized as of December 31, 2015 with capital of $282.6 million as compared to $274.2 million at September 30, 2015. As of December 31, 2015, Stonegate's total risk-based capital ratio was 11.8%; Stonegate's Tier 1 and Common Equity Tier 1 capital ratio were each 11.0%; and Stonegate's leverage capital ratio was 10.0%.
  
  

Loans and Deposits

Loans outstanding at December 31, 2015 were $1.86 billion as compared to $1.84 billion at September 30, 2015, an increase of $19.5 million during the fourth quarter of 2015.

The loan portfolio consists primarily of loans to individuals and small- and medium-sized businesses within Stonegate's primary market areas of South and West Florida. The table below shows the loan portfolio composition:

(in thousands of dollars)			December 31, 2015			September 30, 2015
Commercial			$	216,163		$	210,261
Commercial real estate - owner occupied				499,949			466,945
Commercial real estate - other				534,449			549,629
Construction and land development				201,523			204,165
Residential real estate				333,339			329,685
Consumer and other loans				86,500			91,936
	Total loans			1,871,923			1,852,621
Less: discount on loans acquired				11,648			11,959
Less: net deferred fees				2,704			2,563
Recorded investment in loans				1,857.571			1,838,099
Less: Allowance for loan losses				18,149			18,023
	Net loans		$	1,839,422		$	1,820,076

New loan originations were $123.1 million during the fourth quarter of 2015, with fundings of $90.6 million. As of December 31, 2015, outstanding commitments were approximately $392.7 million with approximately $91.2 million representing new approved loan originations and approximately $130.3 million in unfunded construction commitments.

Deposits increased to $2.02 billion at December 31, 2015 from $1.95 billion at September 30, 2015. Noninterest-bearing deposits were $394 million at December 31, 2015, an increase from $389.7 million at September 30, 2015, and represented approximately 19.5% of total deposits. NOW deposits increased $26.3 million during the fourth quarter of 2015 to $310.3 million. Money market accounts were $1.05 billion at December 31, 2015, an increase of $43.2 million from September 30, 2015. Time deposits decreased approximately $7.7 million during the fourth quarter of 2015 due to runoff of acquired deposits that were priced above the market.

The following table shows the composition of deposits as of December 31, 2015 and September 30, 2015:

(in thousands of dollars)			December 31, 2015			September 30, 2015
Noninterest bearing			$	393,780		$	390,225
NOW				310,259			283,910
Money market				1,048,454			1,005,228
Savings				102,793			95,863
Certificates of deposit				169,081			176,755
	Total deposits		$	2,024,367		$	1,951,981

Credit Quality and Allowance for Loan Losses

As of December 31, 2015, Stonegate's past due and nonaccrual loans totaled $7.5 million and were 0.40% of total loans as compared to $9.2 million or 0.50% of total loans at September 30, 2015. Loans past due and nonaccrual from acquired portfolios totaled $3.8 million as of December 31, 2015. Loans past due 30-89 days were $864,000 at December 31, 2015, a significant decrease from $2.8 million at September 30, 2015. The decrease in past due loans was a result of two loans for $2.6 million being transferred to nonaccrual status during the current quarter. Nonaccrual loans stood at $6.6 million at December 31, 2015, a slight increase from $6.4 million at September 30, 2015. This increase was primarily due to the addition of four loans for $2.7 million, of which $2.6 million were legacy loans, offset by the payoff of six loans for $2.4 million. Legacy nonaccrual loans were approximately $3.6 million at December 31, 2015 versus $1.0 million as of September 30, 2015. Residential loans classified as nonaccrual were $3.7 million or 55.2% of the nonaccrual loans and commercial real estate loans classified as nonaccrual were $1.8 million or 27.6% of the nonaccrual as of December 31, 2015. As of December 31, 2015, Stonegate did not have any loans past due 90 days or more that were still accruing. At December 31, 2015, there remained approximately $8.6 million in nonaccretable discounts on loans previously acquired. None of the acquired loans are subject to a loss share arrangement with the Federal Deposit Insurance Corporation.

Nonperforming assets (nonaccrual loans and other real estate owned) were $8.0 million as of December 31, 2015, a decrease of $1.0 million from September 30, 2015. Other real estate owned decreased to $1.4 million as of December 31, 2015 as compared to $2.6 million as of September 30, 2015. The decrease was the result of the sale of three properties during the quarter.

The following table outlines nonperforming assets for the periods ended:

(in thousands of dollars)			December 31,  2015				September 30, 2015
Nonaccrual			$	6,635			$	6,367
Other real estate owned				1,390				2,629
	Total nonperforming assets		$	8,025			$	8,996
Nonperforming loans as a percentage of total loans				0.36	%			0.35	%
Nonperforming assets as a percentage of total assets				0.34	%			0.39	%

Loans modified as a troubled debt restructuring were $9.8 million and $9.9 million at December 31, 2015 and September 30, 2015, respectively. Loans classified as a troubled debt restructuring and on nonaccrual status were unchanged from September 30, 2015 at $450,000. There were no loans modified as troubled debt restructuring during the fourth quarter of 2015. Specific reserves allocated to loans modified as troubled debt restructuring decreased to $106,000 at December 31, 2015, from $117,000 at September 30, 2015.

At December 31, 2015, the allowance for loan losses was $18.1 million, an increase of $126,000 from September 30, 2015. During the fourth quarter of 2015, recoveries totaled $126,000 and charge-offs were $300,000. Additionally, $300,000 was added to the allowance for loan losses through a provision expense. Specific reserves increased to $778,000 at December 31, 2015 from $700,000 at September 30, 2015. The allowance for loan losses represented 0.98% of total loans as of December 31, 2015 and September 30, 2015. Additionally, the allowance represented 1.35% of total legacy loans as of December 31, 2015. Only legacy loans are covered by the allowance as acquired loans are recorded at their fair value on the date of acquisition and none of these loans have experienced significant deterioration above their initial estimate.

The following table shows the activity in the allowance for loan losses for the quarters ended:

(in thousands of dollars)		December 31, 2015				September 30, 2015
Balance at beginning of period		$	18,023			$	17,414
Charge-offs			(300	)			(593	)
Recoveries			126				359
Provision for loan losses			300				843
Balance at end of period		$	18,149			$	18,023

The table below reflects the allowance allocation per loan category and percent of loans in each category to total loans for the periods indicated:

(in thousands of dollars)			December 31, 2015					September 30, 2015
			Amount			%		Amount			%
Commercial			$	2,457		13.5		$	2,424		13.4
Commercial real estate				11,671		64.3			11,102		61.6
Construction and land development				1,702		9.4			1,763		9.8
Residential real estate				1,954		10.8			2,361		13.1
Consumer and other loans				365		2.0			373		2.1
	Total		$	18,149		100.0		$	18,023		100.0

The following is a summary of information pertaining to impaired loans for the three months ended:

(in thousands of dollars)		December 31, 2015			September 30, 2015			December 31, 2014
Impaired loans without a valuation allowance		$	9,437		$	9,043		$	7,165
Impaired loans with a valuation allowance			6,571			6,178			8,072
Total impaired loans		$	16,008		$	15,221		$	15,237
Valuation allowance related to impaired loans		$	778		$	700		$	853

Net Interest Income and Margin

On a tax equivalent basis, Stonegate's net interest income for the three months ended December 31, 2015 was $21.8 million, a decrease of approximately $888,000 from the third quarter of 2015 and an increase of $7.0 million from the fourth quarter 2014. While earning assets grew from the third quarter of 2015 to the fourth quarter of 2015, the decrease in net interest income from the third quarter of 2015 was primarily a result of the recognition of nonaccretable discounts in the third quarter. The increase from the fourth quarter of 2014 was primarily a result of the loans and other interest-earning assets acquired from Community Bank of Broward ("CBB") and organic growth. Average loans for the fourth quarter of 2015 were $1.84 billion as compared to $1.80 billion for the third quarter of 2015 and $1.28 billion for the fourth quarter of 2014.

The net interest margin on a tax equivalent basis decreased from 4.32% for the third quarter of 2015 to 4.06% for the fourth quarter of 2015. The net interest margin was 3.78% for the fourth quarter of 2014. As noted above, the net interest margin was augmented in the third quarter of 2015 by the recognition of nonaccretable discounts. Without these discounts, the net interest margin for the third quarter of 2015 would have been approximately 4.00%. The average yield on total earning assets was 4.48% for the fourth quarter of 2015 versus 4.72% for the third quarter of 2015. The average yield on paying liabilities increased 2 basis points from 0.52% from the third quarter of 2015 to 0.54% for the fourth quarter of 2015. Stonegate's cost of funds has declined from 0.49% for the December 2014 month-to-date average to 0.44% for the December 2015 month-to-date average.

The following table recaps yields and costs by various interest-earning asset and interest-bearing liability account types for the current quarter, the previous quarter and the same quarter last year.

Yield and cost table (unaudited)

(in thousands of dollars)

		4th Quarter 2015									3rd Quarter 2015									4th Quarter 2014
		Average Balance			Interest			Rate			Average Balance			Interest			Rate			Average Balance			Interest			Rate
ASSETS
Loans, Net(1)(2)(4)		$	1,842,950		$	23,412		5.04	%		$	1,801,517		$	24,182		5.33	%		$	1,278,430		$	16,135		5.01	%
Investment Securities			107,636			446		1.64				108,046			433		1.59				82,572			330		1.59
Federal Funds Sold			27,717			33		0.47				26,522			24		0.36				20,000			15		0.30
Other Investments(3)			2,895			33		4.52				2,895			33		4.52				2,422			26		4.26
Deposits with interest at banks			147,647			115		0.31				143,267			117		0.32				169,919			127		0.30
Total Earning Assets			2,128,845			24,039		4.48	%			2,082,247			24,789		4.72	%			1,553,343			16,633		4.25	%
LIABILITIES
Savings, NOW and Money Market		$	1,439,200		$	1,802		0.50	%		$	1,360,792		$	1,677		0.49	%		$	1,023,698		$	1,351		0.52	%
Time Deposits			173,311			239		0.55				181,453			226		0.49				169,660			256		0.60
Total Interest Bearing Deposits			1,612,511			2,041		0.50				1,542,245			1,903		0.49				1,193,358			1,607		0.53
Other Borrowings			63,371			223		1.40				63,095			223		1.40				55,137			213		1.53
Total Interest Bearing Liabilities			1,675,882			2,264		0.54	%			1,605,340			2,126		0.52	%			1,248,495			1,820		0.58	%
Net interest spread (tax equivalent basis) (4)								3.94	%								4.20	%								3.67	%
Net interest margin (tax equivalent basis) (5)								4.06	%								4.32	%								3.78	%

(1)		Average balances include nonaccrual loans, and are net of unearned loan fees of $2,589, $2,548 and $1,859 for 4th Quarter 2015, 3rd Quarter 2015 and 4th Quarter 2014, respectively.
(2)		Interest income includes fees on loans of $66, $49 and $27 for 4th Quarter 2015, 3rd Quarter 2015 and 4th Quarter 2014, respectively.
(3)		"Other investments" consists of equity stock in the Federal Home Loan Bank of Atlanta ("FHLB") that Stonegate is required to own based on its transactions with the FHLB.
(4)		Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates to adjust tax exempt interest income on tax exempt loans to a fully taxable basis.
(5)		Represents net interest income divided by total interest-earning assets.

Noninterest Income

Noninterest income of $2.5 million for the fourth quarter of 2015 increased from $1.7 million for the quarter ended September 30, 2015. The increase was primarily attributable to recognition of a non-recurring gain of $595,000 on the sale of an option contained in a land lease and an increase of $263,000 in customer swap fees during the quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2015 decreased from $12.4 million at September 30, 2015 to $12.3 million and was greater than the $9.2 million for the three months ended December 31, 2014.

Salaries and employee benefits decreased slightly to $6.7 million for the fourth quarter versus $6.8 million for the third quarter of 2015. This compares with $5.1 million for the three months ended December 31, 2014. The increase over the fourth quarter of 2014 was primarily attributable to the increase in staff as a result of the CBB acquisition.

Occupancy and equipment expenses were unchanged at $2.2 million for the three months ended December 31, 2015 and September 30, 2015. Occupancy and equipment expenses were $1.4 million for the three months December 31, 2014. The increase compared to the quarter ended December 31, 2014 was due to the additional facilities acquired from CBB.

Data processing expense decreased slightly from $445,000 for the third quarter of 2015 to $431,000 for the quarter ended December 31, 2015. Professional fees increased for the three months ended December 31, 2015 to $773,000. This compared to professional fees of $546,000 for the three months ended September 30, 2015 and $682,000 for the three months ended December 31, 2014. More than half of the increase in professional fees from the third quarter of 2015 to the fourth quarter of 2015 was the result of attorney fees related to forward looking projects the bank has been and is exploring. However, during the fourth quarter of 2014, Stonegate incurred approximately $125,000 in legal and other professional fees related to the CBB acquisition.

The table below outlines the expenses for the quarters ended:

		December 31, 2015			September 30, 2015			December 31, 2014
(in thousands of dollars)
Salaries and employee benefits		$	6,695		$	6,804		$	5,083
Occupancy and equipment expense			2,184			2,186			1,447
FDIC insurance and state assessments			382			381			326
Data processing			431			445			322
Loan and other real estate expense			95			200			86
Professional fees			773			546			682
Core deposit intangible amortization			449			449			326
Other operating expenses			1,331			1,418			883
Totals		$	12,340		$	12,429		$	9,155

About Stonegate Bank

Stonegate Bank is a full-service commercial bank, providing a wide range of business and consumer financial products and services through its 21 banking offices in its target marketplaces of South and West Florida, which are comprised primarily of Broward, Charlotte, Collier, Hillsborough, Lee, Miami-Dade, Palm Beach and Sarasota Counties in Florida. Stonegate's principal executive office and mailing address is 400 North Federal Highway, Pompano Beach, Florida 33062 and its telephone number is (954) 315-5500.

In conjunction with this earnings report, the Company will offer a live participatory conference call to discuss the financial results for the fourth quarter of 2015. This telephone conference call will be held on Friday, January 29, 2016, beginning at 2:30 p.m. Eastern Time. The call-in toll-free telephone number is 1-866-820-3585. The Conference ID# is 25912111. Participants will be asked for their First Name, Last Name and Company Name. An audio replay of the conference call will be available until February 13, 2016, and may be accessed telephonically at 1-855-859-2056 using Conference ID# 25912111.

Forward-Looking Statements

Any non-historical statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current plans and expectations that are subject to uncertainties and risks, which could cause our future results to differ materially. The following factors, among others, could cause our actual results to differ: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; our need and ability to incur additional debt or equity financing; our ability to execute our growth strategy through expansion; our ability to comply with the extensive laws and regulations to which we are subject; changes in the securities and capital markets; changes in general market interest rates; legislative and regulatory changes; monetary and fiscal policies of the U.S. Treasury and the Federal Reserve; changes in the quality or composition of our loan portfolios; demand for loan products; changes in deposit flows, real estate values, and competition and other economic, competitive, and technological factors affecting our operations, pricing, products and services; and our ability to manage the risks involved in the foregoing. Additional factors can be found in our filings with the FDIC, which are available at the FDIC's internet site (http://www2.fdic.gov/efr). Forward-looking statements in this press release speak only as of the date of the press release and Stonegate Bank assumes no obligation to update any forward-looking statements or the reasons why actual results could differ.

Stonegate Bank and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands of dollars, except per share data)
				December 31, 2015				December 31, 2014
Assets
Cash and due from banks				$	257,934			$	231,406
Federal funds sold					30,000				20,000
Securities held to maturity (Fair value of $107,659 at December 31, 2015 and $83,318 at December 31, 2014)					106,619				81,627
Other investments					2,895				2,422
Loans, net of allowance for loan losses of $18,023 at September 30, 2015 and $16,630 at December 31, 2014					1,839,421				1,292,692
Premises and equipment, net					25,769				25,620
Bank-owned life insurance					29,776				22,832
Other real estate owned					1,390				259
Other assets					86,634				46,436
		Total assets		$	2,380,438			$	1,723,294
Liabilities and Stockholders' Equity
Liabilities
	Total deposits			$	2,024,367			$	1,452,194
	Other borrowings				58,638				56,297
	Other liabilities				14,869				13,688
		Total liabilities			2,097,874				1,522,179
Stockholders' Equity
	Senior non-cumulative perpetual preferred stock, Series A, $1,000 liquidation value; 12,750 shares authorized; no shares issued and outstanding as of June 30, 2015; 12,750 issued and outstanding as of December 31, 2014				-				12,750
	Common stock, $5 par value, 20,000,000 shares authorized; 12,643,752 issued and 12,641,094 shares outstanding as of June 30, 2015 and 10,257,163 shares issued and 10,254,505 outstanding as of December 31, 2014				63,762				51,286
	Additional paid-in capital				146,994				88,180
	Retained earnings				73,205				50,641
	Treasury Stock				(13	)			(13	)
	Accumulated other comprehensive income (loss)				(1,384	)			(1,729	)
		Total stockholders' equity			282,564				201,115
		Total liabilities and stockholders' equity		$	2,380,438			$	1,723,294

Stonegate Bank and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(in thousands of dollars, except per share data)
					For the three months ended
					December 31, 2015			September 30, 2015			December 31, 2014
Interest income:
	Interest and fees on loans				$	23,079		$	23,894		$	15,929
	Interest on securities					446			434			330
	Interest on federal funds sold and at other banks					148			140			142
	Other interest					33			33			26
		Total interest income				23,706			24,501			16,427
Interest expense:
	Interest on deposits					2.041			1,903			1,608
	Other interest					223			223			213
		Total interest expense				2,264			2,126			1,821
		Net interest income				21,442			22,375			14,606
	Provision for loan losses					300			843			(1,575	)
		Net interest income after provision for loan losses				21,142			21,532			16,181
Noninterest income:
	Service charges and fees on deposit accounts					772			753			418
	Other noninterest income					1,740			936			768
	Total noninterest income					2,512			1,689			1,186
Noninterest expense:
	Salaries and employee benefits					6,695			6,804			5,083
	Occupancy and equipment expenses					2,184			2,186			1,447
	Data processing					431			445			322
	Professional fees					773			546			682
	Core deposit intangible amortization					449			449			326
	Other operating expenses					1,808			1,999			1,295
		Total noninterest expense				12,340			12,429			9,155
		Income before income taxes				11,314			10,792			8,212
		Income tax				4,050			3,955			2,983
		Net income				7,264			6,837			5,229
		Preferred stock dividend				-			-			32
			Net income applicable to common stock		$	7,264		$	6,837		$	5,197
Earnings per common share:
Basic					$	0.57		$	0.54		$	0.51
Diluted						0.56			0.53			0.49
Common shares used in the calculation of earnings per share:
Basic						12,704,558			12,650,042			10,231,070
Diluted						13,037,123			13,006,584			10,603,369

Stonegate Bank and Subsidiaries
CONDENSED FINANCIAL HIGHLIGHTS
(in thousands of dollars)
		As of
		September 30,  2015				September 30,  2015				December 31,  2014
BALANCE SHEET ITEMS:
Assets		$	2,380,438			$	2,312,127			$	1,723,294
Loans, net			1,839,422				1,820,076				1,292,692
Deposits			2.024.367				1,951,981				1,452,194
Stockholders' equity			282,564				274,153				201,115
CAPITAL RATIOS:
Total capital to risk weighted assets			11.8	%			11.5	%			14.2	%
Tier 1 capital to risk weighted assets			11.0				10.7				13.0
Common Equity Tier 1 to risk weighted assets			11.0				10.7				N/A
Tier 1 capital to average assets			10.0				10.0				11.0
QUARTERLY AVERAGE
BALANCE SHEET ITEMS:
Assets		$	2,375,948			$	2,294,617			$	1,706,017
Interest earning assets			2,128,845				2,082,247				1,555,343
Loans, net			1,825,012				1,801,517				1,278,430
Interest bearing liabilities			1,674,333				1,605,340				1,248,495
Deposits			2,015,859				1,945,906				1,438,572
Stockholders' equity			279,466				272,508				198,532

Stonegate Bank and Subsidiaries
CONDENSED FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per share data)
		Three Months Ended
		December 31, 2015			September 30, 2015			December 31, 2014
FINANCIAL DATA:
Net interest income		$	21,442		$	22,375		$	14,606
Net interest income - tax equivalent			21,775			22,663			14,812
Noninterest income			2,512			1,689			1,186
Noninterest expense			12,340			12,429			9,155
Income tax			4,050			3,955			2,983
Net income			7,264			6,837			5,229
Preferred stock dividend			-			-			32
Net income attributed to common shares			7,294			6,837			5,197
Weighted average number of common shares outstanding:
Basic			12,704,558			12,650,042			10,231,070
Diluted			13,037,123			13,006,584			10,603,369
Per common share data:
Basic		$	0.57		$	0.54		$	0.51
Diluted			0.56			0.53			0.49
Cash dividend declared to common shares			1,020			506			408