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Stonegate Bank Announces Second Quarter 2017 Operating Results

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POMPANO BEACH, Fla., July 28, 2017 (GLOBE NEWSWIRE) -- Stonegate Bank (NASDAQ:SGBK) ("Stonegate") reported net income of $8.3 million for the second quarter of 2017 or $0.54 per diluted common share ($0.59 per common share net operating income, a non-GAAP measurement described below), as compared to net income of $8.0 million for the first quarter of 2017 or $0.53 per diluted common share. 

Net operating income is a non-GAAP financial measurement used by management to evaluate and monitor financial results of operations and excludes certain activities or transactions, such as merger and acquisition related expenses.  Information related to our use of non-GAAP financial measures and a table reconciling GAAP to non-GAAP measures used in this press release are under the caption Non-GAAP Financial Measures – Reconciliation of GAAP to non-GAAP Measures.

Key highlights for the second quarter:

  • Loans:  Total loans, net of discounts and deferred fees, declined $20.6 million during the second quarter of 2017 to $2.46 billion at June 30, 2017, a result of net loan payoffs and principal reductions during the quarter.  Commercial real estate ("CRE") comprised 46% of new loan originations for the second quarter of 2017, based upon the outstanding balance as of June 30, 2017. Residential loans accounted for 33% of the new loan originations, commercial and industrial ("C&I") were 11% of the new loan originations; 8% of the new originations were construction with the remaining balance in consumer and other loans.  The loan production for the second quarter was comprised of 54% variable rate loans.  Approximately 69% of the variable rate loans originated in the second quarter were tied to LIBOR. 
  • Asset Quality:  Total loans past due, excluding nonaccrual loans, were $1.4 million at June 30, 2017, a decrease of $3.0 million from March 31, 2017.  Nonaccrual loans were $11.1 million at June 30, 2017, or 0.45% of total loans, an increase from $9.1 million at March 31, 2017, or 0.37% of total loans.  Other real estate owned was $4.2 million at June 30, 2017, unchanged from March 31, 2017. 
  • Net Interest Income and Margin:  Net interest income, on a tax-equivalent basis, increased $864,000 for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017.  Net interest income totaled $27.1 million for the three months ended June 30, 2017.  The net interest margin, on a tax-equivalent basis, decreased to 3.84% for the second quarter of 2017 as compared to 3.91% for the first quarter of 2017 and 3.97% for the quarter ended June 30, 2016.  The decrease in the margin from the first quarter of 2017 to the second quarter of 2017 was primarily a result of a decrease in the amount of accretion that was recognized during the second quarter.
  • Noninterest Expense:  Noninterest expense increased to $16.3 million for the three months ended June 30, 2017 from $15.1 million for the three months ended March 31, 2017.  The increase was due to the added expenses of Insignia Bank for a full three months in the second quarter and $980,000 of costs associated with both the Insignia Bank conversion in early June 2017 and our pending acquisition by Home BancShares, Inc.
  • Capital:  Stonegate remained well-capitalized as of June 30, 2017 with capital of $417.8 million as compared to $410.1 million at March 31, 2017.  As of June 30, 2017, Stonegate's total risk-based capital ratio was 12.5%; Stonegate's Tier 1 and Common Equity Tier 1 capital ratios were each 11.5%; and Stonegate's leverage capital ratio was 10.7%. 

Loans and Deposits

Loans outstanding at June 30, 2017 were $2.46 billion as compared to $2.48 billion at March 31, 2017, a decrease of $20.6 million during the second quarter of 2017. 

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)   June 30, 2017   March 31, 2017
             
Commercial   $ 312,147   $ 322,453
Commercial real estate - owner occupied     522,915     549,740
Commercial real estate - other     789,352     779,116
Construction and land development     261,187     264,040
Residential real estate     472,367     457,933
Consumer and other loans     111,511     117,954
Credit Cards     1,427     1,151
Total loans     2,470,906     2,492,387
Less: discount on loans acquired     7,168     8,216
Less: net deferred fees     3,373     3,233
Recorded investment in loans     2,460,365     2,480,938
Less: Allowance for loan losses     19,848     19,538
Net loans   $ 2,440,517   $ 2,461,400

New loan originations were $160.1 million during the second quarter of 2017, with fundings of $111.1 million.  As of June 30, 2017, outstanding commitments were approximately $504.6 million with approximately $75.9 million representing new approved loan originations and approximately $158.6 million in unfunded construction commitments and approximately $13.9 in unfunded credit card lines. 

Total deposits decreased to $2.62 billion at June 30, 2017 from $2.72 billion at March 31, 2017.  Noninterest-bearing deposits were $609.7 million at June 30, 2017, a decrease from $628.5 million at March 31, 2017, and represented approximately 23.2% of total deposits. 

The following table shows the composition of deposits as of June 30, 2017 and March 31, 2017:

(in thousands of dollars)   June 30, 2017   March 31, 2017
             
Noninterest bearing   $ 609,656   $ 628,497
NOW     304,121     338,461
Money market     1,384,598     1,401,763
Savings     136,011     137,065
Certificates of deposit     188,681     215,153
Total deposits   $ 2,623,067   $ 2,720,939

Credit Quality and Allowance for Loan Losses
Loans past due 30-89 days were $1.3 million at June 30, 2017, a decrease from $4.4 million at March 31, 2017.  The decrease in loans past due was primarily attributable to two loans, for a total of $2.6 million, acquired from Florida Shores Bank – Southwest, and two legacy loans for $587,000 which were transferred to nonaccrual status.  Past dues acquired in the Insignia Bank acquisition totaled $337,000 at June 30, 2017.  There was one loan from the Regent Bank portfolio which was past due 90 days or more and still accruing at June 30, 2017.  There were no legacy loans (i.e., loans made by Stonegate and not acquired by acquisition or otherwise) which were past due at June 30, 2017.  Nonaccrual loans stood at $11.1 million at June 30, 2017, an increase from $9.1 million at March 31, 2017.  This increase was due primarily to $3.1 million of new loans that were changed to nonaccrual status during the second quarter, offset by two nonaccrual loans for $669,000 which were paid off and five loans for $365,000 which were charged-off. Legacy nonaccrual loans were approximately $2.9 million at June 30, 2017 versus $2.8 million as of March 31, 2017.  Residential loans classified as nonaccrual were $2.6 million or 23.5% of the nonaccrual loans and commercial real estate loans classified as nonaccrual were $3.9 million or 34.8% of the nonaccrual loans as of June 30, 2017.  At June 30, 2017, there remained approximately $13.8 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.  The following table outlines Stonegate's past due and nonaccrual loans at June 30, 2017:

(dollars in thousands)   Legacy Loans   Insignia Bank   Regent Bank   Other Acquired
Banks
  Total
Past due 30-89 days   $ -   $ 337   $ 656   $ 307   $ 1,300
Past due 90 + days     -     -     129     -     129
Nonaccrual        2,909       -       3,540       4,674       11,123
Total   $    2,909   $   337   $   4,325   $   4,981   $   12,552

Nonperforming assets (nonaccrual loans and other real estate owned) were $15.3 million as of June 30, 2017, an increase of $2.0 million from March 31, 2017.  Other real estate owned ("OREO") was virtually unchanged at June 30, 2017 as compared to March 31, 2017. 

The following table outlines nonperforming assets for the periods ended:

(in thousands of dollars)   June 30,
 2017
  March 31,
 2017
 
                     
Nonaccrual   $ 11,123   $ 9,058  
Other real estate owned     4,211     4,222  
  Total nonperforming assets   $ 15,334   $ 13,280  
           
Nonperforming loans as a percentage of total loans     0.45%     0.37%  
Nonperforming assets as a percentage of total assets     0.49%     0.41%  

Loans modified as troubled debt restructuring were $10.5 million and $9.4 million at June 30, 2017 and March 31, 2017, respectively.  There were four loans modified as troubled debt restructuring during the second quarter of 2017.  Specific reserves allocated to loans modified as troubled debt restructuring decreased to $145,000 at June 30, 2017, from $161,000 at March 31, 2017.

At June 30, 2017, the allowance for loan losses was $19.8 million, an increase of $310,000 from March 31, 2017.  During the second quarter of 2017 recoveries totaled $104,000, charge-offs were $394,000 and we added provision expense of $600,000.  The provision expense added for the second quarter was due to an increase in charged off loans and to the continued seasoning of the acquired loan portfolios. Specific reserves decreased to $757,000 at June 30, 2017 from $1.0 million at March 31, 2017.  The allowance for loan losses represented 0.81% of total loans as of June 30, 2017 and 0.79% as of March 31, 2017.  Additionally, as of June 30, 2017, the allowance represented 1.02% of total loans which are currently being reserved for. 

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

(in thousands of dollars)   June 30,
2017
  March 31,
2017
         
Balance at beginning of period   $ 19,538     $ 18,888  
Charge-offs     (394 )     (118 )
Recoveries     104       168  
Provision for loan losses     600       600  
Balance at end of period   $ 19,848     $ 19,538  

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

    June 30,
2017
  March 31,
2017
(in thousands of dollars)    
    Amount   %   Amount   %
Commercial   $ 2,903   14.6   $ 2,915   14.9
Commercial real estate     12,042   60.7     11,742   60.1
Construction and land development     1,983   10.0     1,913   9.8
Residential real estate     2,458   12.4     2,491   12.8
Consumer and other loans     462   2.3     477   2.4
Total   $ 19,848   100.0   $ 19,538   100.0

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

(in thousands of dollars)    June 30,
2017
   March 31,
2017
   June 30,
2016
                   
Impaired loans without a valuation allowance   $ 14,982   $ 7,986   $ 6,637
Impaired loans with a valuation allowance     7,667     7,975     5,644
Total impaired loans   $ 22,649   $ 15,961   $ 12,281
                   
Valuation allowance related to impaired loans   $ 757   $ 1,024   $ 611

Net Interest Income and Margin
On a tax-equivalent basis, Stonegate's net interest income for the three months ended June 30, 2017 was $27.1 million, an increase of approximately $864,000 from the first quarter of 2017 and an increase of $5.1 million from the second quarter 2016.  Average earning assets grew $114.4 million from the first quarter of 2017 to the second quarter of 2017, primarily a result of the increase in the assets acquired from Insignia Bank, which occurred on March 7, 2017.  The yield on loans decreased from 5.00% for the first quarter of 2017 to 4.85% for the second quarter of 2017, which was also a decrease from the 5.00% yield for the second quarter of 2016.  The decrease in the loan yield in the second quarter was due to the decrease in nonaccretable discounts, associated with loan payoffs, recognized in the second quarter of 2017 over the first quarter of 2017. 

The net interest margin on a tax-equivalent basis decreased from 3.91% for the first quarter of 2017 to 3.84% for the second quarter of 2017.  The net interest margin was 3.97% for the second quarter of 2016.  The average yield on total earning assets was 4.37% for the second quarter of 2017 versus 4.43% for the first quarter of 2017.  The average yield on paying liabilities increased four basis points from 0.69% from the first quarter of 2017 to 0.73% for the second quarter of 2017.  Stonegate's cost of funds has increased from 0.48% for the June 2016 month-to-date average to 0.59% for the June 2017 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)            
    2nd Quarter 2017    1st Quarter 2017    2nd Quarter 2016 
    Average
Balance
  Interest   Rate    Average
Balance
  Interest   Rate    Average
Balance
  Interest   Rate 
ASSETS                                                              
Loans, Net(1)(2)(4)   $ 2,462,579   $ 29,763   4.85 %   $ 2,323,075   $ 28,648   5.00 %   $ 1,909,961   $ 23,754   5.00 %
Investment Securities     111,465     385   1.39       117,985     483   1.66       109,352     441   1.62  
Federal Funds Sold     30,000     91   1.22       30,000     68   0.92       30,000     53   0.71  
Other Investments(3)     4,666     56   4.81       4,068     46   4.59       3,049     35   4.62  
Deposits with interest at banks     229,307     640   1.12       248,528     531   0.87       178,622     233   0.52  
Total Earning Assets     2,838,017     30,935   4.37 %     2,723,656     29,776   4.43 %     2,230,984     24,516   4.42 %
                                     
                                     
LIABILITIES                                    
Savings, NOW and Money Market   $ 1,801,783   $ 3,076   0.68 %   $ 1,795,495   $ 2,823   0.64 %   $ 1,486,766   $ 2,067   0.56 %
Time Deposits     201,982     265   0.53       183,091     263   0.58       147,830     206   0.56  
Total Interest Bearing Deposits     2,003,765     3,341   0.67       1,978,586     3,086   0.63       1,634,596     2,273   0.56  
Other Borrowings     82,647     448   2.17       81,115     408   2.04       57,767     215   1.50  
Total Interest Bearing Liabilities     2,086,412     3,789   0.73 %     2,059,701     3,494   0.69 %     1,692,363     2,488   0.59 %
                                                               
Net interest spread (tax- equivalent basis) (4)                       3.64 %               3.74 %               3.83 %
Net interest margin (tax-equivalent basis) (5)                       3.84 %               3.91 %               3.97 %
                                                               
(1) Average balances include nonaccrual loans, and are net of unearned loan fees of $3,187, $3,239 and $3,101 for 2nd Quarter 2017, 1st Quarter 2017 and 2nd Quarter 2016, respectively.
(2) Interest income includes fees on loans of $70, $60 and $32 for 2nd Quarter 2017, 1st Quarter 2017 and 2nd Quarter 2016, 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 $2.9 million for the second quarter of 2017 increased from $2.1 million for the quarter ended March 31, 2017.  The increase in the second quarter was primarily due to $366,000 in loan prepayment fees that were collected, $196,000 in interest swap fees and approximately $170,000 net gain on the sale of a former Regent Bank banking office.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2017 increased to $16.3 million from $15.1 million at March 31, 2017, and from $12.8 million for the three months ended June 30, 2016. 

Salaries and employee benefits increased to $8.8 million for the second quarter of 2017 versus $8.4 million for the first quarter of 2017.  This compares with $6.9 million for the three months ended June 30, 2016.  The increase in salaries and employee benefits in the second quarter of 2017 from the first quarter of 2017 were from the staff added with the Insignia Bank acquisition in March 2017, both permanent and temporary, as well as payments made in the second quarter for the Insignia Bank conversion.

Occupancy and equipment expenses increased to $2.5 million for the three months ended June 30, 2017 from $2.3 million for the quarter ended March 31, 2017.  Occupancy and equipment expenses were $2.1 million for the three months June 30, 2016.  Expenses for merger-related branch closures were approximately $200,000 during the second quarter of 2017.

Data processing expenses increased $447,000 from $478,000 for the first quarter of 2017 to $925,000 for the quarter ended June 30, 2017.  Approximately $356,000 million of data processing expenses in the second quarter were related to the Insignia Bank data conversion.  Professional fees for the three months ended June 30, 2017 were $994,000.  This compared to professional fees of $1.4 million for the three months ended March 31, 2017 and $954,000 for the three months ended June 30, 2016. During the second quarter of 2017, there was $203,000 in legal and other professional fees for merger-related expenses as compared to $583,000 in the first quarter of 2017 and $334,000 in the second quarter of 2016.

The table below outlines the expenses for the quarters ended:

    June 30, 2017   March 31, 2017   June 30, 2016
(in thousands of dollars)            
             
Salaries and employee benefits   $ 8,770   $ 8,411   $ 6,907
Occupancy and equipment expense     2,469     2,264     2,158
FDIC insurance and state assessments     406     398     284
Data processing     925     478     447
Loan and other real estate expense     590     201     102
Professional fees     994     1,352     954
Core deposit intangible amortization     575     463     408
Other operating expenses     1,596     1,551     1,540
Totals   $ 16,325   $ 15,118   $ 12,800

Looking forward to the third quarter of 2017, Stonegate anticipates additional costs associated with the pending merger with Home Bancshares, Inc. and Centennial Bank.

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 24 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.

There will not be a conference call held this quarter to discuss the second quarter results. 

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)
 
    June 30, 2017   December 31, 2016
Assets            
Cash and due from banks   $ 325,314     $ 305,803  
Federal funds sold     30,000       30,000  
Securities held to maturity (Fair value of $109,132 at June 30, 2017 and $116,719 at December 31, 2016)     108,803       116,529  
Other investments     4,601       3,833  
Loans, net of allowance for loan losses of $19,848 at June 30, 2017 and $18,888 at December 31, 2016     2,440,517       2,256,048  
Premises and equipment, net     34,633       38,510  
Bank premises held for sale     4,872       -  
Bank-owned life insurance     47,729       44,011  
Other real estate owned     4,211       2,792  
Other assets     132,508       104,076  
  Total assets   $ 3,133,188     $ 2,901,602  
             
Liabilities and Stockholders' Equity            
Liabilities            
Total deposits   $ 2,623,067     $ 2,447,826  
Other borrowings     68,146       71,448  
Subordinated Debentures     8,289       8,175  
Other liabilities     15,861       19,040  
Total liabilities     2,715,363       2,546,489  
             
 Stockholders' Equity            
Common stock, $5 par value, 20,000,000 shares authorized; 15,222,546 issued and 15,319,888 shares outstanding as of   June 30, 2017 and 14,267,451 shares issued and 14,264,793 outstanding as of December 31, 2016     76,613       71,337  
Additional paid-in capital     230,388       186,948  
Retained earnings     111,683       97,814  
Treasury Stock        (13 )     (13 )
Accumulated other comprehensive income (loss)     (846 )     (973 )
Total  stockholders' equity     417,825       355,113  
Total liabilities and stockholders' equity   $ 3,133,188     $ 2,901,602  


 
Stonegate Bank and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(in thousands of dollars, except per share data)
 
    For the three months ended
    June 30,
2017
  March 31,
2017
  June 30,
2016
Interest income:                  
Interest and fees on loans   $ 29,381   $ 28,253   $ 23,314
Interest on securities     385     483     441
Interest on federal funds sold and at other banks     731     599     286
Other interest     56     46     35
Total interest income     30,553     29,381     24,076
                   
Interest expense:                  
Interest on deposits     3,341     3,086     2,273
Other interest     448     408     215
Total interest expense     3,789     3,494     2,488
Net interest income     26,764     25,887     21,588
Provision for loan losses     600     600     -
 Net interest income after                  
       provision for loan losses     26,164     25,287     21,588
                             
Noninterest income:
  Service charges and fees on deposit accounts
  786 846     632
 Other noninterest income     2,132     1,231     1,113
Total noninterest income     2,918     2,077     1,745
Noninterest expense:                  
Salaries and employee benefits     8,770     8,411     6,907
Occupancy and equipment expenses     2,469     2,264     2,158
Data processing     925     478     447
Professional fees     994     1,352     954
Core deposit intangible amortization     575     463     408
Other operating expenses     2,592     2,150     1,926
Total noninterest expense     16,325     15,118     12,800
Income before income taxes     12,757     12,246     10,533
Income tax     4,433     4,252     3,616
         Net income applicable to common stock   $ 8,324   $ 7,994   $ 6,917
Earnings per common share:                  
Basic   $ 0.54   $ 0.55   $ 0.54
Diluted     0.53     0.53     0.52
Common shares used in the calculation of earnings per share:                  
Basic     15,318,219     14,558,233     12,825,612
Diluted     15,809,027     15,090,775     13,189,982


 
Stonegate Bank and Subsidiaries
CONDENSED FINANCIAL HIGHLIGHTS
(in thousands of dollars)
 
     As of 
      June 30,
 2017
      December 31,
 2016
      June 30,
 2016
 
BALANCE SHEET ITEMS:                        
Assets   $ 3,133,188     $ 2,901,602     $ 2,404,139  
Loans, net     2,440,517       2,256,048       1,945,517  
Deposits     2,623,067       2,447,826       2,034,212  
Stockholders' equity     417,825       355,113       296,961  
                         
CAPITAL RATIOS:                        
Total capital to risk weighted assets     12.5 %     12.1 %     12.0 %
Tier 1 capital to risk weighted assets     11.5       11.1       11.1  
Common Equity Tier 1 to risk weighted assets     11.5       11.1       11.1  
Tier 1 capital to average assets     10.7       10.0       10.4  
                         
QUARTERLY AVERAGE
BALANCE SHEET ITEMS:
                       
Assets   $ 3,131,269     $ 2,948,409     $ 2,430,820  
Interest earning assets     2,838,017       2,687,990       2,230,934  
Loans, net of allowance for loan losses     2,443,090       2,279,629       1,891,500  
Interest bearing liabilities     2,086,412       2,023,913       1,692,363  
Deposits     2,616,478       2,499,516       2,060,687  
Stockholders' equity     415,979       351,730       294,362  


 
Stonegate Bank and Subsidiaries
CONDENSED FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per share data)
       
     Three Months Ended
      June 30, 2017       March 31, 2017       June 30,
 2016
FINANCIAL DATA:                      
Net interest income   $ 26,764     $ 25,887     $ 21,588
Net interest income – tax-equivalent     27,146       26,282       22,028
Noninterest income     2,918       2,077       1,745
Noninterest expense     16,325       15,118       12,800
Income tax     4,433       4,252       3,616
Net income attributed to common shares     8,324       7,994       6,917
Weighted average number of common shares
 outstanding:
                     
Basic     15,318,219       14,558,233       12,825,612
Diluted     15,809,027       15,090,775       13,189,982
Per common share data:                      
Basic   $ 0.54     $ 0.55     $ 0.54
Diluted     0.53       0.53       0.52
Cash dividend declared to common shares     1,226       1,224       1,028
                       

Non-GAAP Financial Measures
This press release contains financial information determined by methods other than in accordance with GAAP. Stonegate's management uses these non-GAAP financial measures in their analysis of Stonegate's performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that in management's opinion can distort period-to-period comparisons of Stonegate's performance. Since the presentation of these GAAP performance measures and their impact differ between companies, management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of Stonegate's core business. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures in this press release are set forth below.

Reconciliation of GAAP to non-GAAP Measures
(in thousands of dollars, except per share data)

      June 30, 2017   March 31, 2017
Interest income, as reported (GAAP)   $ 30,553 $ 29,381
Tax-equivalents adjustments     382   395
Interest income (tax equivalent)   $ 30,935 $ 29,776
Net interest income, as reported (GAAP)   $ 26,764 $ 25,887
Tax-equivalent adjustments     382   395
Net interest income (tax equivalent)   $ 27,146 $ 26,282
Net income (GAAP)   $ 8,324 $ 7,994
Non-interest expense adjustments:          
Merger and acquisition related expenses     577   16
Branch closure expenses     200   -
Professional expenses     203   583
Tax effect using the effective tax rate for the period presented     341   208
Net operating income   $ 8,963 $ 8,385
           
Net operating income per common share   $ 0.59 $ 0.58
           

INVESTOR RELATIONS:
Dave Seleski (dseleski@stonegatebank.com)
Stonegate Bank
(954) 315-5510

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