Stonegate Bank 2008 Second Quarter Earnings Release

Stonegate Bank (OTCBB:SGBK) reported net income in the 2nd quarter of 2008 of $215,000 compared to net income of $293,000 in the 2nd quarter of 2007. For the first six months of the year the Bank reported net income of $290,000 in 2008 compared with $687,000 in the same period in 2007.

Interest income decreased from $4.5 million in the 2nd quarter of 2007 to $4.0 million in the 2nd quarter of 2008. Interest income decreased from $8.7 million in the first six months of 2007 to $7.9 million in the first six months of 2008. This decrease was the direct result of a lower interest rate environment. Interest expense decreased from $3.8 million in the first six months of 2007 to $3.2 million in the first six months of 2008.

Net interest income decreased from $2.5 million in the 2nd quarter of 2007 to $2.48 million in the same period of 2008. Total net interest income for the first 6 months of 2007 was $4.9 million as opposed to $4.7 million for the similar period in 2008. This resulted in net interest income decreasing $184,000. Total non-interest income increased from $193,000 in the first six months of 2007 to $630,000 in the first six months of 2008, a 226% increase.

Total non-interest expense increased from $3.85 million in the first six months of 2007 to $4.84 million in the first six months of 2008. Stonegate Bank has significantly reduced expenses by closing the Sarasota office and reducing staffing levels in our existing offices. Total non-interest expense was $774,000 in the month of June in 2007 as compared to $801,000 in the month of June in 2008. Non-interest expense continues to level off and management expects this trend to continue in 2008 as the Bank continues to look for additional opportunities to reduce costs.

The Bank’s net interest margin increased from 3.09% in March of 2008 to 3.55% in June of 2008. The first quarter margin was low due to the write-off of $225,000 in interest related to the sale of a note. While the Bank continues to see margin pressure on the liability side of the balance sheet, margins are improving on the asset side with the normalized yield curve. Assuming a neutral Fed, these should offset each other in the coming quarters.

Total assets increased from $229 million on 6/30/07 to $287 million on 6/30/08, growth of 25%. Loans increased from $175 million on 6/30/07 to $230 million on 6/30/08. Total deposits grew from $165 million on 6/30/07 to $193 million on 6/30/08. Total non-core brokered deposits were $36 million on 6/30/08. This represents 18.5% of total deposits. Despite some deposit rate pricing challenges the Bank continues to attract core deposits increasingly due to the financial strength of the Bank and superior cash management products. Total capital remained relatively flat at $41.1 million at 6/30/08 compared to the same period last year. This resulted in an undiluted book value of $10.28 per undiluted share at 6/30/08. The Bank remained well capitalized with a tier one capital ratio of 15.53% at 6/30/08.

The Bank had the same two non-performing assets totaling $2.27 million at 6/30/08 as mentioned in the 1st quarter 2008 press release. This represents .98% of total loans. The first loan was originally a $3 million warehouse line participation and is secured by single family residences in the Tampa and Jacksonville market. The current balance on this loan is $1,396,000. Management has charged off $621,000 of this loan to date and believes there is a minimal exposure to this credit. The second NPA is an $880,000 land loan. Based on an appraisal of the property as well as the strength of the guarantors, management believes there is only a small impairment and is fully reserved on the asset. The Bank continues to monitor the portfolio for further deterioration.

According to David Seleski, president and CEO, “Historically a Bank in Florida would begin its management discussion about growth. I think given the challenging banking environment it is more appropriate to talk about expense controls. Between increased reserves, legal expenses and compressed margins, expense control was and still is very important to our organization. Confidence in our Bank in this market by both the investment community and our clients is driven by profitability. We have reduced our monthly controllable expenses to our 2007 level and are looking for additional ways to become more efficient. This will lead to increased profitability in the coming quarters.

“That being said, we still have the infrastructure to grow to $400 million with only a minimal investment in people. We will continue to leverage our capital in a prudent manner with tight expense controls. Clearly there are growth opportunities in this market as our competition continues to pull back because of either capital or credit restrictions. Surprisingly, we continue to see more customers leaving the large regional banks for smaller banks like Stonegate. We expect our growth to continue as we 'cherry pick' the best credits. While we hate to see the negative and certainly unfounded press on the state of banking in Florida, we continue to attract nervous depositors largely because of our strong capital ratios,” continued Seleski.

“The Bank’s credit quality remains good with only two non-performing assets in our portfolio. We do not expect a quick resolution on either loan. However we also feel there is at best a minimal potential loss on both credits. Overall we are seeing deterioration in the consumer sector and less so among the construction and commercial sectors. Our exposure to the consumer side of the market is negligible in relation to our capital. Based on this we feel our loan loss reserve of 1.02% is adequate. We continue to monitor the portfolio carefully,” stated 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.

Contacts:

Stonegate Bank, Fort Lauderdale
David Seleski, 954-315-5510