Park Sterling Corporation Announces Record Operating Results For Fourth Quarter 2012

CHARLOTTE, N.C., Feb. 8, 2013 (GLOBE NEWSWIRE) -- Park Sterling Corporation (Nasdaq:PSTB), the holding company for Park Sterling Bank, today released unaudited results of operations and other financial information for the fourth quarter of 2012. Highlights at and for the three months ended December 31, 2012 include:

Highlights
  • Net income available to common shareholders of $1.3 million, or $0.03 per share
  • Net income available to common shareholders, excluding merger-related expenses, of $3.5 million, or $0.08 per share
  • Increase in net interest margin to 4.36% from 3.97% at September 30, 2012
  • Increase in net interest margin, excluding accelerated mark accretion, to 4.13% from 3.98% at September 30, 2012
  • Decrease in nonperforming loans to 1.31% of total loans from 2.45% at September 30, 2012
  • Decrease in nonperforming assets to 2.13% of total assets from 2.74% at September 30, 2012
  • Strong capitalization, with tangible common equity to tangible assets of 11.11%
  • Completed merger with Citizens South Banking Corporation on October 1, 2012

"Park Sterling's fourth quarter marked the successful consummation of our merger with Citizens South and continued progress toward achieving our vision of creating a regional-sized community bank in the Carolinas and Virginia," said James C. Cherry, Chief Executive Officer. "We reported record operating results, with adjusted net income available to common shareholders, which excludes merger-related expenses and gain on sale of securities, increasing 257% to $3.5 million, or $0.08 per share, for the three months ended December 31, 2012. Our metropolitan markets led the effort in generating $12.0 million in organic loan growth during the period, representing a 13% annualized growth rate. We also posted continued organic growth in both our mortgage banking and wealth management operations. In addition, we benefited from reaching our targeted $2.5 million in quarterly cost savings from the merger with Citizens South, and are now well positioned to invest future savings in new growth opportunities.

"Asset quality continued to improve during the fourth quarter. While the absolute level of nonperforming loans increased as a result of the merger with Citizens South, this level decreased as a percentage of total loans from 2.45% at September 30, 2012 to 1.31% at December 31, 2012. Nonperforming assets similarly increased on an absolute basis, but decreased as a percentage of total assets from 2.74% to 2.13%. Approximately 63% of Park Sterling's loans now carry acquisition accounting related net fair market value adjustments, which we believe will help buffer future results against potential loan losses. The combination of our normal allowance and these loan marks represented 4.73% of total loans at year-end. Net charge-offs for the year represented a modest 0.18% of average loans, and we actually posted a small net recovery of 0.03% in the fourth quarter. We believe this mixture of good asset quality and sound reserve levels, combined with our strong capital position and liquidity, provides an excellent foundation for future growth.

"Park Sterling is now the largest community bank headquartered in the attractive Charlotte-Gastonia-Rock Hill MSA, with a strong deposit franchise extending through the Upstate region of South Carolina and into North Georgia, and an expanding presence in the important growth markets of Raleigh and Wilmington, North Carolina, and Greenville and Charleston, South Carolina. Our asset-based lending and residential construction groups offer specialized avenues to originate attractive risk-return loans in this highly competitive environment. Further, our treasury management, wealth management and mortgage banking capabilities provide significant opportunities to diversify revenues away from traditional lending activities. We believe that together, Park Sterling's appealing footprint, broad product capabilities, good asset quality, strong balance sheet and exceptional bankers position us for continued success."    

Fourth Quarter 2012 Financial Results

Income Statement

Three Month Results

Park Sterling reported a 105% increase in net income available to common shareholders to $1.3 million, or $0.03 per share, for the three months ended December 31, 2012 ("2012Q4"). This compares to net income of $620,000, or $0.02 per share, for the three months ended September 30, 2012 ("2012Q3") and a net loss of $982,000, or $0.03 per share, for the three months ended December 31, 2011 ("2011Q4"). The increase in reported net income from the prior periods resulted primarily from increased earning assets, higher net interest margin and higher noninterest income associated with the merger with Citizens South Banking Corporation, which was completed on October 1, 2012. Net income for 2011Q4 included two months of results from the merger with Community Capital Corporation, which was completed on November 1, 2011.   

Park Sterling reported a 257% increase in adjusted net income available to common shareholders, which excludes merger related expenses and gain on sale of securities, to a record $3.5 million, or $0.08 per share, for 2012Q4. This compares to adjusted net income of $987,000, or $0.03 per share, for 2012Q3 and of $432,000, or $0.01 per share, for 2011Q4. There was no gain on the sale of securities in either 2012Q4 or 2011Q4. The increase in adjusted net income from the prior periods again reflects improvements associated with the merger with Citizens South, combined with continued organic growth.

Net interest income totaled $19.5 million for 2012Q4, which represented a $9.6 million, or 96%, increase from $10.0 million for 2012Q3, and an $11.7 million, or 150%, increase from $7.8 million for 2011Q4. Average earning assets increased $784.3 million, or 79%, from 2012Q3 to $1.8 billion at 2012Q4, which included a $669.2 million, or 93%, increase in average loans to $1.4 billion. Average earning assets increased $944.5 million, or 113%, from 2011Q4, which included a $765.2 million, or 123%, increase in average loans.      

Net interest margin was 4.36% in 2012Q4, representing a 39 basis point improvement from 3.97% in 2012Q3 and a 66 basis point improvement from 3.70% in 2011Q4. Adjusted net interest margin, which excludes accelerated interest income, was 4.13% in 2012Q4, representing a 15 basis point improvement from 3.98% in 2012Q3 and a 43 basis point improvement from 3.70% in 2011Q4. The accelerated interest income, which totaled $1.0 million in 2012Q4 compared to a $17,000 reversal in 2012Q3, includes $921,000 of accelerated accretion from credit and interest rate marks associated with acquisition accounting adjustments for performing acquired loans, as accounted for under the contractual cash flow method of accounting, and $121,000 in other accretion adjustments. The accelerated accretion of credit and interest rate marks resulted from borrowers repaying performing acquired loans faster than required by their contractual terms and/or restructuring loans in such a way as to effectively result in a new loan under the contractual cash flow method of accounting, both of which result in the associated remaining credit and interest rate marks being fully accreted into interest income.

Provision for loan losses was $994,000 for 2012Q4, compared to $7,000 for 2012Q3 and $1.1 million for 2011Q4. Fourth quarter 2012 results included $906,000 of provision expense associated with acquired loans, comprised of a $676,000 impairment in two of the company's six purchase credit impaired (PCI) loan pools and a $230,000 qualitative allowance associated with performing loans acquired in the merger with Citizens South. The remaining increase in provision expense in 2012Q4 resulted from higher non-acquired loan balances. Fourth quarter 2011 results included $187,000 of provision expense associated with acquired loans, comprised of a $37,000 impairment in the company's PCI loan pools and a $150,000 qualitative allowance associated with performing loans acquired in the merger with Community Capital.    

Noninterest income was $3.8 million in 2012Q4, compared to $3.3 million in 2012Q3 and $1.4 million in 2011Q4. Adjusted noninterest income, which excludes gain on sale of securities, increased $1.5 million, or 64%, to $3.8 million in 2012Q4, compared to $2.3 million in 2012Q3. This improvement reflects both the merger with Citizens South and continued organic growth in both the company's mortgage banking and wealth management operations. Mortgage banking, which also benefited from the merger with Citizens South, reported a $153,000, or 23%, increase in revenues to $815,000, and wealth management reported a $28,000, or 4%, increase in revenues to $693,000.   

Noninterest expenses totaled $20.3 million in 2012Q4, compared to $12.2 million in 2012Q3 and $10.0 million in 2011Q4. Adjusted noninterest expenses, which excludes merger-related expenses of $3.2 million, $1.4 million and $2.6 million, respectively, increased $6.2 million, or 58%, to $17.1 million in 2012Q4 compared to $10.8 million in 2012Q3, and increased $9.7 million, or 131%, compared to $7.4 million in 2011Q4. The increase from 2012Q3 again resulted primarily from the merger with Citizens South, while the inclusion of a full quarter of results from Community Capital and organic growth efforts also contributed to the increase from 2011Q4. Management remains comfortable in the company's ability to achieve our targeted $10.2 million in sustainable annual cost savings from the merger with Citizens South by the end of 2013.              

Twelve Month Results

Park Sterling reported net income available to common shareholders of $4.3 million, or $0.12 per share, for the twelve months ended December 31, 2012, compared to a net loss of $8.4 million, or $0.29 per share, for the twelve months ended December 31, 2011. Results for 2012 included three months of operations from the merger with Citizens South and a full year of operations from Community Capital. Results for 2011 included two months of operations from the merger with Community Capital. 

The company reported adjusted net income available to common shareholders of $7.5 million, or $0.21 per share, in 2012, compared to a net loss of $5.9 million, or $0.21 per share, in 2011. Net interest income increased $31.9 million, or 165%, from 2011, primarily as a result of higher levels of average earning assets from both acquired operations and organic loan growth. Net interest margin increased 128 basis points to 4.27% in 2012 compared to 2.99% in 2011, primarily as a result of higher yielding assets from the mergers, including accretion of acquisition accounting net fair market value adjustments, and improved liability mix and pricing. Noninterest income increased $10.0 million, or 621%, to $11.6 million in 2012 from $1.6 million in 2011, driven both by acquired operations and organic growth. Adjusted noninterest income increased $8.5 million, or 537%, to $10.1 million in 2012 from $1.6 million in 2011. Noninterest expense increased $29.3 million, or 118%, to $54.3 million in 2012 from $24.9 million in 2011, again driven both by acquired operations and organic growth. Adjusted noninterest expenses increased $27.3 million, or 129%, to $48.4 million in 2012 from $21.1 million in 2011.            

Balance Sheet

Total assets increased $922 million, or 83%, to $2.0 billion at 2012Q4 compared to total assets of $1.1 billion at 2012Q3, primarily as a result of the merger with Citizens South. Cash and equivalents increased $77.7 million, or 73%, to $184.2 million. Securities increased $61.6 million, or 32%, to $253.0 million. Total loans, which exclude loans held for sale, increased $648.6 million, or 92%, to $1.4 billion, including $101.4 million in covered loans associated with the two failed bank transactions acquired with Citizens South. Park Sterling posted $12.0 million, or 3% (13% annualized), in organic loan growth in 2012Q4.  New loan origination remains somewhat tempered as a result of aggressive competition in the market with respect to term structure and interest rates, and continued general softness in the economy.  

The merger with Citizens South led to a shift in loan mix during the fourth quarter. Total consumer loans increased from 25% of total loans at 2012Q3 to 31% of total loans at 2012Q4. This shift was driven by an increase in residential mortgages from 8% to 14% of total loans. Home equity lines of credit and residential construction loans remained flat at 12% and 4% of total loans, respectively. The combination of commercial and industrial and owner-occupied real estate loans remained the largest category of loans at $418.7 million, or 31%, of total loans at 2012Q4, but declined from 33% of total loans at 2012Q3. Investor owned commercial real estate totaled $372.4 million at 2012Q4, representing 27% of total loans compared to 29% at 2012Q3. Acquisition, construction and development loans totaled $140.5 million at 2012Q4, representing 10% of total loans compared to 11% at 2012Q3.        

The merger with Citizens South also led to a shift in deposit mix during the fourth quarter. Total deposits increased $800.3 million, or 96%, to $1.6 billion at 2012Q4 compared to $831.7 million at 2012Q3. Noninterest bearing demand deposits increased $77.6 million, or 47%, to $243.5 million at 2012Q4, but declined from 20% of total deposits at 2012Q3 to 15% of total deposits at 2012Q4. Money market, NOW and savings deposits increased $417.0 million, or 122%, to $758.8 million at 2012Q4, and represented 46% of total deposits compared to 41% at 2012Q3. Non-brokered time deposits increased $326.3 million, or 170%, to $518.7 million at 2012Q4, and represented 32% of total deposits compared to 23% at 2012Q3. Finally, brokered deposits decreased $20.5 million, or 16%, to $111.0 million at 2012Q4, and represented 7% of total deposits compared to 16% at 2012Q3.

Total borrowings increased $33.0 million, or 48%, to $101.7 million at 2012Q4 compared to $68.7 million at 2012Q3, including borrowings assumed in the merger with Citizens South. Borrowings at 2012Q4 included $70.0 million in Federal Home Loan Bank borrowings, $14.7 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments, and $6.9 million of Tier 2-eligible subordinated debt.

Total shareholders' equity increased $79.7 million, or 41%, to $275.5 million at 2012Q4 compared to $195.8 million at 2012Q3. This included $20.5 million of preferred stock issued in association with the Citizens South merger upon conversion of its preferred stock previously issued to the United States Department of the Treasury in connection with its participation in the Small Business Lending Fund. Common shareholders equity increased $59.2 million, or 30%, to $255.0 million. This increase primarily resulted from the issuance of 11,857,266 shares of Park Sterling's common stock, valued at $58.6 million (based on the $4.94 per share closing price on the last trading day prior to consummation), as the stock component of consideration for the merger with Citizens South. The company's ratio of tangible common equity to tangible assets remained strong, but did decrease to 11.11% at 2012Q4 from 17.31% at 2012Q3 as a result of more effectively leveraging capital through the merger. Similarly, the Tier 1 leverage ratio remained strong, but did decrease to 11.25% at 2012Q4 from 15.39% at 2012Q3. 

The merger with Citizens South led to a net $5.9 million increase in core deposit intangibles and a $22.5 million increase in goodwill in 2012Q4. This represents a $7.6 million increase from earlier estimates, primarily as a result of a reduction in anticipated positive fair market value accounting adjustments associated with the two FDIC loss share agreements assumed in connection with the merger. The reduction in anticipated positive adjustments resulted from improved estimated performance in the underlying covered loan and OREO portfolios, which suggests a reduced need for loss share reimbursements over the life of the agreements.       

Asset Quality

Asset quality continued to improve in the fourth quarter, reflecting stabilizing economic conditions in the company's markets, continued management focus on problem assets and continued discipline in the origination of new loans. As a result of the merger with Citizens South, nonperforming loans increased in absolute level by $472,000, or 3%, to $17.8 million at 2012Q4, compared to $17.3 million at 2012Q3. However, nonperforming loans declined on a percentage basis over that same period to 1.31% of total loans in 2012Q4 from 2.45% in 2012Q3. Nonperforming loans totaled $20.2 million at 2011Q4 and represented 2.66% of total loans. 

Similarly, nonperforming assets increased in absolute level by $12.8 million, or 42%, to $43.2 million at 2012Q4 compared to $30.4 million at 2012Q3. However, nonperforming assets declined on a percentage basis over that same period to 2.13% of total assets in 2012Q4 from 2.74% in 2012Q3. In addition, approximately half of the dollar increase in nonperforming assets from Citizens South can be attributed to $6.7 million in covered OREO, for which the company expects certain losses to be reimbursed under the FDIC loss share agreements. Nonperforming assets totaled $36.2 million at 2011Q4 and represented 3.25% of total assets.

The company reported a net recovery of $390,000 in 2012Q4, or 0.03% of average loans (annualized), compared to net charge-offs of $231,000 in 2012Q3, or 0.13% of average loans (annualized), and net charge-offs of $789,000 in 2011Q4, or 0.51% of average loans (annualized). For the full year, the company reported net charge-offs of $1.6 million in 2012, or 0.18% of average loans, compared to net charge-offs of $11.7 million in 2011, or 6.06% of average loans.

The allowance for loan losses was $10.6 million, or 0.78% of total loans at 2012Q4, compared to $9.2 million, or 1.30% of total loans at 2012Q3 and $10.2 million, or 1.34% of total loans at 2011Q4. The increase in the absolute level of allowance in 2012Q4 from 2012Q3 primarily reflects the earlier discussed $676,000 increase related to impairments in purchase credit impaired pools and $230,000 increase in the qualitative allowance component associated with acquired performing loans. The decrease in percentage of total loans reflects the inclusion of acquired loans, for which no allowance is provided under generally accepted accounting principles. Adjusted allowance for loan losses, which includes the allowance for loan losses and acquisition accounting related net fair market value adjustments for acquired loans, represented 4.73% of total loans in 2012Q4, compared to 4.34% in 2012Q3 and 5.97% in 2011Q4. 

During the first quarter of 2011, and as contemplated in the 2010 equity offering, 568,260 shares of restricted stock were issued but will not vest until the company's share price achieves certain performance thresholds above the equity offering price (these restricted stock awards vest one-third each when the share price reaches, for 30 consecutive days, $8.125, $9.10 and $10.40 per share, respectively). These performance thresholds have not yet been achieved. Accordingly, these additional shares have been excluded from earnings and tangible book value per share calculations. 

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (February 8, 2013). The conference call can be accessed by dialing (877) 317-6789 and requesting the Park Sterling Corporation earnings call. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations."

A replay of the webcast will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations" shortly following the call. A replay of the conference call can be accessed approximately one hour after the call by dialing (877) 344-7529 and requesting conference number 10009544.

About Park Sterling Corporation

Park Sterling Corporation, the holding company for Park Sterling Bank, is headquartered in Charlotte, North Carolina. Park Sterling, a regional community-focused financial services company with $2 billion in assets, is the largest community bank in the Charlotte area and has 44 banking offices stretching across the Carolinas and into North Georgia. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage brokerage, cash management, consumer and business finance, and wealth management. Park Sterling prides itself on being large enough to help customers achieve their financial aspirations, yet small enough to care that they do. Park Sterling is focused on building a banking franchise that is noted for sound risk management, strong community focus and exceptional customer service. For more information, visit www.parksterlingbank.com. Park Sterling Corporation shares are traded on NASDAQ under the symbol PSTB.

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income (loss), adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, asset quality measures including the effects of acquisition accounting fair market value adjustments (loan marks), and related ratios and per share measures, as used throughout this release, are non-GAAP financial measures. For additional information, see "Reconciliation of Non-GAAP Financial Measures" in the accompanying tables.

Cautionary Statement Regarding Forward Looking Statements

This news release contains, and Park Sterling and its management may make, certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," "goal," "target" and similar expressions. These forward-looking statements express management's current expectations or forecasts of future events, results and conditions, including financial and other estimates and expectations regarding the merger with Citizens South Banking Corporation; the general business strategy of engaging in bank mergers, organic growth,  branch openings and closing, expansion or addition of product capabilities, expected footprint of the banking franchise and anticipated asset size; anticipated loan growth; changes in loan mix and deposit mix; capital and liquidity levels; net interest income, provision expense, noninterest income and noninterest expenses; credit trends and conditions, including loan losses, allowance for loan loss, charge-offs, delinquency trends and nonperforming asset levels; the amount, timing and prices of share repurchases; and other similar matters. These forward-looking statements are not guarantees of future results or performance and by their nature involve certain risks and uncertainties that are based on management's beliefs and assumptions and on the information available to Park Sterling at the time that these disclosures were prepared. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.

You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks, as well as those more fully discussed in any of Park Sterling's filings with the SEC: failure to realize synergies and other financial benefits from the Citizens South merger within the expected time frames; increases in expected costs or decreases in expected savings or difficulties related to integration of the merger; inability to identify and successfully negotiate and complete additional combinations with potential merger partners or to successfully integrate such businesses into Park Sterling, including the company's ability to adequately estimate or to realize the benefits and cost savings from and limit any unexpected liabilities acquired as a result of any such business combination; the effects of negative economic conditions or a "double dip" recession, including stress in the commercial real estate markets or delay or failure of recovery in the residential real estate markets; the impact of deterioration of the United States credit standing; changes in consumer and investor confidence and the related impact on financial markets and institutions; changes in interest rates; failure of assumptions underlying the establishment of allowances for loan losses; deterioration in the credit quality of the loan portfolio or in the value of the collateral securing those loans; deterioration in the value of securities held in the investment securities portfolio; fluctuations in the market price of the common stock, regulatory, legal and contractual requirements, other uses of capital, the company's financial performance, market conditions generally or modification, extension or termination of the authorization by the board of directors, in each case impacting purchases of common stock; legal and regulatory developments, including changes in the federal risk-based capital rules; increased competition from both banks and nonbanks; changes in accounting standards, rules and interpretations, inaccurate estimates or assumptions in accounting, including acquisition accounting fair market value assumptions and accounting for purchased credit-impaired loans, and the impact on Park Sterling's financial statements; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk.

Forward-looking statements speak only as of the date they are made, and Park Sterling undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

           
           
 PARK STERLING CORPORATION           
 CONDENSED CONSOLIDATED INCOME STATEMENT         
 THREE MONTH RESULTS           
 ($ in thousands, except per share amounts)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2012 2012 2012 2012 2011
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income           
Loans, including fees   $ 20,269  $ 10,346  $ 10,416  $ 12,110  $ 8,285
Taxable investment securities   792  826  969  1,020  795
Tax-exempt investment securities   191  187  186  185  183
Nonmarketable equity securities   80  22  28  64  43
Interest on deposits at banks   79  34  28  11  29
Federal funds sold   11  16  15  8  5
Total interest income   21,422  11,431  11,642  13,398  9,340
Interest expense           
Money market, NOW and savings deposits   491  339  333  326  269
Time deposits   777  632  720  821  836
Short-term borrowings   7  --  --  3  1
FHLB advances   143  149  148  161  135
Subordinated debt   472  340  341  367  286
Total interest expense   1,890  1,460  1,542  1,678  1,528
Net interest income   19,532  9,971  10,100  11,720  7,812
Provision for loan losses   994  7  899  123  1,110
Net interest income after provision   18,538  9,964  9,201  11,597  6,702
Noninterest income           
Service charges on deposit accounts   879  324  299  314  241
Mortgage banking income   815  662  540  461  297
Income from wealth management activities   693  665  661  599  447
ATM and card income   664  207  223  228  163
Income from bank-owned life insurance   450  294  260  259  213
Gain on sale of securities available for sale   --  989  489  --  --
Other noninterest income   307  177  91  60  35
Total noninterest income   3,808  3,318  2,563  1,921  1,396
 Noninterest expenses           
 Salaries and employee benefits   11,041  6,314  5,871  6,118  6,245
 Occupancy and equipment   1,942  928  910  874  705
 Data processing and outside service fees   1,599  784  696  1,291  460
 Net cost of operation of other real estate owned   1,167  964  809  522  400
 Legal and professional fees   1,077  1,181  614  318  505
 Deposit charges and FDIC insurance   473  261  250  266  98
 Advertising and promotion   367  144  108  161  132
 Postage and supplies   360  112  124  195  171
 Communication fees   319  198  196  232  119
 Core deposit intangible amortization   257  102  102  102  68
 Loan and collection expense   248  434  295  244  255
 Other noninterest expense   1,403  781  860  647  853
 Total noninterest expenses   20,253  12,203  10,835  10,970  10,011
 Income (loss) before income taxes   2,093  1,079  929  2,548  (1,913)
 Income tax expense (benefit)   771  459  251  825  (931)
 Net income (loss)   1,322  620  678  1,723  (982)
 Preferred dividends   51  --  --  --  --
 Net income (loss) available to common shares   $ 1,271  $ 620  $ 678  $ 1,723  $ (982)
           
 Earnings (loss) per common share, fully diluted   $ 0.03  $ 0.02  $ 0.02  $ 0.05  $ (0.03)
 Weighted average diluted common shares   44,025,874  32,138,554  32,120,402  32,075,398  30,719,363
     
     
 PARK STERLING CORPORATION     
 CONDENSED CONSOLIDATED INCOME STATEMENT     
 TWELVE MONTH RESULTS     
 ($ in thousands, except per share amounts)  December 31, December 31,
  2012 2011*
  (Unaudited)  
Interest income     
Loans, including fees   $ 53,142  $ 21,776
Taxable investment securities   3,606  2,830
Tax-exempt investment securities   750  716
Nonmarketable equity securities   194  53
Interest on deposits at banks   153  99
Federal funds sold   49  90
Total interest income   57,894  25,564
Interest expense     
Money market, NOW and savings deposits   1,488  743
Time deposits   2,951  4,011
 Short-term borrowings   11  3
 FHLB advances   600  557
 Subordinated debt   1,520  855
 Total interest expense   6,570  6,169
 Net interest income   51,324  19,395
 Provision for loan losses   2,023  9,385
 Net interest income after provision   49,301  10,010
 Noninterest income     
 Service charges on deposit accounts   1,814  315
 Mortgage banking income   2,478  297
 ATM and card income   1,322  181
 Income from wealth management activities   2,619  447
 Income from bank-owned life insurance   1,264  265
 Gain on sale of securities available for sale   1,478  20
 Other noninterest income   634  85
 Total noninterest income   11,609  1,610
 Noninterest expenses     
 Salaries and employee benefits   29,343  14,778
 Occupancy and equipment   4,654  1,677
 Data processing and outside service fees   4,371  807
 Net cost of operation of other real estate owned   3,462  829
 Legal and professional fees   3,190  2,738
 Deposit charges and FDIC insurance   1,250  702
 Advertising and promotion   781  372
 Postage and supplies   791  315
 Communication fees   945  232
 Core deposit intangible amortization   564  68
 Loan and collection expense   1,221  630
 Other noninterest expense   3,689  1,775
 Total noninterest expenses   54,261  24,923
 Income (loss) before income taxes   6,649  (13,303)
 Income tax expense (benefit)   2,306  (4,944)
 Net income (loss)   4,343  (8,359)
 Preferred dividends   51  --
 Net income (loss) available to common shares   $ 4,292  $ (8,359)
     
 Earnings (loss) per common share, fully diluted   $ 0.12  $ (0.29)
 Weighted average diluted common shares   35,108,229  28,723,647
     
* Derived from audited financial statements.    
           
           
PARK STERLING CORPORATION           
CONDENSED CONSOLIDATED BALANCE SHEETS           
($ in thousands)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2012 2012 2012 2012 2011*
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   
ASSETS           
Cash and due from banks   $ 36,798  $ 47,115  $ 15,898  $ 18,016  $ 18,426
Interest-earning balances at banks   101,431  37,256  29,795  15,567  10,115
Investment securities available-for-sale   245,571  186,802  222,221  232,464  210,146
Nonmarketable equity securities   7,422  4,599  5,470  8,510  8,510
Federal funds sold   45,995  22,165  29,455  20,085  --
Loans held for sale   14,147  6,095  5,331  8,055  6,254
Loans - Non-covered   1,255,387  708,283  712,506  727,862  759,047
Loans - Covered   101,446  --  --  --  --
Allowance for loan losses   (10,591)  (9,207)  (9,431)  (9,556)  (10,154)
Net loans   1,346,242  699,076  703,075  718,306  748,893
           
Premises and equipment, net   57,222  26,729  24,619  24,371  24,515
FDIC receivable for loss share agreements   20,323  --  --  --  --
Other real estate owned - non-covered   18,662  13,028  14,744  16,674  14,403
Other real estate owned - covered   6,728  --  --  --  --
Bank-owned life insurance   46,162  26,945  26,689  26,456  26,223
Deferred tax asset   41,824  29,087  29,841  30,143  31,131
Goodwill   23,114  622  622  649  428
Core deposit intangible   9,658  3,715  3,817  3,920  4,022
Other assets   11,334  6,954  7,542  7,535  10,156
           
Total assets   $ 2,032,633  $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222
           
LIABILITIES AND SHAREHOLDERS' EQUITY           
           
Deposits:           
Demand noninterest-bearing   $ 243,495  $ 165,899  $ 158,838  $ 148,929  $ 142,652
Money market, NOW and savings   758,763  341,788  332,648  329,633  333,968
Time deposits   629,746  323,988  350,548  377,875  370,017
Total deposits   1,632,004  831,675  842,034  856,437  846,637
           
Short-term borrowings   10,143  1,135  1,678  852  9,765
FHLB advances   70,000  55,000  55,000  55,000  40,000
Subordinated debt   21,573  12,592  12,494  12,396  12,296
Accrued expenses and other liabilities   23,372  13,982  13,727  13,250  14,470
Total liabilities   1,757,092  914,384  924,933  937,935  923,168
           
Shareholders' equity:           
Preferred stock   20,500  --  --  --  --
Common stock   44,576  32,707  32,707  32,644  32,644
Additional paid-in capital   220,842  173,826  173,318  172,873  172,390
Accumulated deficit   (13,575)  (14,839)  (15,459)  (16,137)  (17,860)
Accumulated other comprehensive income   3,198  4,110  3,620  3,436  2,880
Total shareholders' equity   275,541  195,804  194,186  192,816  190,054
           
Total liabilities and shareholders' equity   $ 2,032,633  $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222
           
Common shares issued and outstanding   44,575,853  32,706,627  32,706,627  32,643,627  32,643,627
           
* Derived from audited financial statements.          
 
 
PARK STERLING CORPORATION
SUMMARY OF LOAN PORTFOLIO
($ in thousands)
  December 31, September 30, June 30, March 31, December 31,
  2012 2012 2012 2012 2011*
BY LOAN TYPE (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Commercial:          
Commercial and industrial  $ 119,315  $ 70,155  $ 67,821  $ 72,094  $ 80,746
Commercial real estate - owner-occupied  299,412  161,360  161,467  166,064  169,663
Commercial real estate - investor income producing  372,375  206,808  197,368  193,641  194,460
Acquisition, construction and development  140,492  81,027  86,612  87,065  92,349
Other commercial  5,628  13,059  13,486  13,518  15,658
Total commercial loans  937,222  532,409  526,754  532,382  552,876
           
Consumer:          
Residential mortgage  188,230  58,062  66,876  75,377  79,512
Home equity lines of credit  163,625  82,690  83,661  86,029  90,408
Residential construction  52,811  25,872  25,559  24,670  25,126
Other loans to individuals  15,554  9,839  10,119  9,635  11,496
Total consumer loans  420,220  176,463  186,215  195,711  206,542
Total loans  1,357,442  708,872  712,969  728,093  759,418
Deferred costs (fees)  (609)  (589)  (463)  (231)  (371)
Total loans, net of deferred costs (fees)  $ 1,356,833  $ 708,283  $ 712,506  $ 727,862  $ 759,047
           
BY ACQUIRED AND NON-ACQUIRED**          
Acquired loans - performing  $ 614,574  $ 246,267  $ 262,104  $ 285,174  $ 299,682
Acquired loans - purchase credit impaired  234,352  42,823  48,045  55,843  63,818
Total acquired loans  848,926  289,090  310,149  341,017  363,500
Non-acquired loans, net of deferred costs (fees)  507,907  419,193  402,357  386,845  395,547
Total loans  $ 1,356,833  $ 708,283  $ 712,506  $ 727,862  $ 759,047
           
* Derived from audited financial statements.          
** Includes loans transferred from acquired pools following release of acquisition accounting FMV adjustments.    
           
           
PARK STERLING CORPORATION          
ALLOWANCE FOR LOAN LOSSES          
THREE MONTH RESULTS          
($ in thousands) December 31, September 30, June 30, March 31, December 31,
  2012 2012 2012 2012 2011
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of period allowance  $ 9,207  $ 9,431  $ 9,556  $ 10,154  $ 9,833
Provision for loan losses  994  7  899  123  1,110
Loans charged-off  (330)  (1,102)  (1,262)  (828)  (1,295)
Recoveries of loans charged-off  720  871  238  107  506
End of period allowance  10,591  9,207  9,431  9,556  10,154
           
Net charge-offs (recoveries)  $ (390)  $ 231  $ 1,024  $ 721  $ 789
Net charge-offs (recoveries) to average loans (annualized) -0.03% 0.13% 0.56% 0.39% 0.51%
           
           
           
PARK STERLING CORPORATION          
SELECTED RATIOS          
($ in thousands, except per share amounts) December 31, September 30, June 30, March 31, December 31,
  2012 2012 2012 2012 2011*
  Unaudited Unaudited Unaudited Unaudited  
ASSET QUALITY          
Nonaccrual loans  $ 10,374  $ 9,792  $ 16,757  $ 17,703  $ 16,256
Troubled debt restructuring  7,367  7,390  3,428  3,451  3,972
Past due 90 days plus (and still accruing)  77  164  131  698  -- 
Nonperforming loans  17,818  17,346  20,316  21,852  20,228
OREO  25,390  13,028  14,744  16,674  14,403
Loans held for sale (nonaccruing)  --   --   --   --   1,560
Nonperforming assets  43,208  30,374  35,060  38,526  36,191
Past due 30-59 days (and still accruing)  607  1,040  992  742  2,401
Past due 60-89 days (and still accruing)  121  561  74  764  924
           
Nonperforming loans to total loans 1.31% 2.45% 2.85% 3.00% 2.66%
Nonperforming assets to total assets 2.13% 2.74% 3.13% 3.41% 3.25%
Allowance to total loans 0.78% 1.30% 1.32% 1.31% 1.34%
Allowance to nonperforming loans 59.44% 53.08% 46.42% 43.73% 50.20%
Allowance to nonperforming assets 24.51% 30.31% 26.90% 24.80% 28.06%
Past due 30-89 days (accruing) to total loans 0.05% 0.23% 0.15% 0.21% 0.44%
Net charge-offs (recoveries) to average loans (annualized) -0.03% 0.13% 0.56% 0.39% 0.51%
           
CAPITAL          
Book value per common share  $ 5.79  $ 6.09  $ 6.04  $ 6.01  $ 5.93
Tangible book value per common share**  $ 5.05  $ 5.96  $ 5.90  $ 5.87  $ 5.79
Common shares outstanding  44,575,853  32,706,627  32,706,627  32,643,627  32,643,627
Dilutive common shares outstanding  44,025,874  32,138,554  32,138,402  32,075,398  32,075,367
           
Tier 1 capital  $ 219,060  $ 165,345  $ 162,167  $ 161,337  $ 160,122
Tier 2 capital  17,611  16,103  16,326  16,451  17,049
Total risk based capital  236,671  181,447  178,494  177,788  177,171
Risk weighted assets  1,452,229  774,035  769,382  786,703  819,762
Average assets for leverage ratio  1,947,156  1,074,410  1,087,079  1,092,468  901,067
           
Tier 1 ratio 15.08% 21.36% 21.08% 20.51% 19.53%
Total risk based capital ratio 16.30% 23.44% 23.20% 22.60% 21.61%
Tier 1 leverage ratio 11.25% 15.39% 14.92% 14.77% 17.77%
Tangible common equity to tangible assets** 11.11% 17.31% 17.02% 16.72% 16.74%
           
LIQUIDITY          
Net loans to total deposits 82.49% 84.06% 83.50% 83.87% 88.46%
Reliance on wholesale funding 12.27% 22.24% 23.02% 23.98% 20.38%
           
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)        
Return on Average Assets 0.25% 0.22% 0.24% 0.61% -0.42%
Return on Average Common Equity 1.96% 1.26% 1.40% 3.60% -2.11%
Net interest margin (non-tax equivalent) 4.36% 3.97% 4.01% 4.65% 3.70%
           
INCOME STATEMENT (ANNUAL RESULTS)          
Return on Average Assets 0.32% n/a n/a n/a -1.20%
Return on Average Equity 1.99% n/a n/a n/a -4.69%
Net interest margin (non-tax equivalent) 4.27% n/a n/a n/a 2.99%
           
* Balance sheet information derived from audited financial statements. Income statement information unaudited.     
** Non-GAAP financial measure          

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income (loss), adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, and adjusted allowance for loan losses, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. Management uses (i) tangible assets, tangible common equity and tangible book value (which exclude goodwill and other intangibles from equity and assets), and related ratios, to evaluate the adequacy of shareholders' equity and to facilitate comparisons with peers; (ii) adjusted allowance for loan losses (which includes net FMV adjustments related to acquired loans) to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and (iii) adjusted net income (loss), adjusted noninterest income and adjusted noninterest expenses (which exclude merger-related expenses and gain on sale of securities, as applicable), and adjusted net interest margin (which excludes accelerated mark accretion) to evaluate core earnings (loss) and to facilitate comparisons with peers.
           
           
PARK STERLING CORPORATION           
RECONCILIATION OF NON-GAAP MEASURES           
($ in thousands, except per share amounts)           
(three month and period end results unless otherwise stated)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2012 2012 2012 2012 2011
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Adjusted net income           
Pretax income (loss) (as reported)  $ 2,093  $ 1,079  $ 929  $ 2,548  $ (1,913)
Plus: merger-related expenses  3,167  1,364  434  930  2,609
Less: gain on sale of securities  --  (989)  (489)  --  --
Pretax income (loss)  5,260  1,454  874  3,478  696
Tax expense (benefit)   1,691  467  281  1,118  264
Adjusted net income  $ 3,569  $ 987  $ 593  $ 2,360  $ 432
Preferred dividends  51  --   --   --   -- 
Adjusted net income available to common shareholders  $ 3,518  $ 987  $ 593  $ 2,360  $ 432
           
Adjusted net income available to common shareholders per share  $ 0.08  $ 0.03  $ 0.02  $ 0.07  $ 0.01
Divided by: weighted average diluted shares  44,025,874  32,138,554  32,120,402  32,075,398  30,719,363
Estimated tax rate 32.15% 32.15% 32.15% 32.15% 37.90%
           
Adjusted net income (loss) (twelve months)           
Pretax income (loss) (as reported)  $ 6,649        $ (13,303)
Plus: merger-related expenses  5,895        3,813
Less: gain on sale of securities  (1,478)        (20)
Pretax income (loss)  11,066        (9,510)
Tax expense (benefit)   3,558        (3,604)
Adjusted net income (loss)  $ 7,508        $ (5,906)
Preferred dividends  51        -- 
Adjusted net income (loss) available to common shareholders  $ 7,457        $ (5,906)
           
Adjusted net income (loss) available to common shareholders per share  $ 0.21        $ (0.21)
Divided by: weighted average diluted shares  35,108,229        28,723,647
Estimated tax rate 32.15%       37.90%
           
Adjusted net interest margin           
Net interest income (as reported)  $ 19,532  $ 9,971  $ 10,099  $ 11,719  $ 7,813
Less: accelerated mark accretion  (1,042)  17  (277)  (1,469)  --
Adjusted net interest income  18,490  9,988  9,822  10,250  7,813
Divided by: average earning assets  1,782,922  998,669  1,012,570  1,013,668  838,436
Multiplied by: annualization factor  3.98  3.98  4.02  4.02  3.97
Adjusted net interest margin 4.13% 3.98% 3.90% 4.07% 3.70%
           
Adjusted noninterest income           
Noninterest income (as reported)  $ 3,808  $ 3,318  $ 2,563  $ 1,921  $ 1,396
Less: gain on sale of securities  --  (989)  (489)  --  --
Adjusted noninterest income  $ 3,808  $ 2,329  $ 2,074  $ 1,921  $ 1,396
           
Adjusted noninterest income (twelve months)           
Noninterest income (as reported)  $ 11,609        $ 1,610
Less: gain on sale of securities  (1,478)        (20)
Adjusted noninterest income  $ 10,131        $ 1,590
           
Adjusted noninterest expense           
Noninterest expense (as reported)  $ 20,253  $ 12,203  $ 10,835  $ 10,970  $ 10,011
Less: merger-related expenses  (3,167)  (1,364)  (434)  (930)  (2,609)
Adjusted noninterest expense  17,086  10,839  10,401  10,040  7,402
           
Adjusted noninterest expense (twelve months)           
Noninterest expense (as reported)  $ 54,261        $ 24,923
Less: merger-related expenses  (5,895)        (3,813)
Adjusted noninterest expense  48,366        21,110
           
           
PARK STERLING CORPORATION           
RECONCILIATION OF NON-GAAP MEASURES           
($ in thousands, except per share amounts)           
(three month and period end results unless otherwise stated)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2012 2012 2012 2012 2011
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Tangible common equity to tangible assets           
Total assets  $ 2,032,633  $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222
Less: intangible assets  (32,772)  (4,337)  (4,439)  (4,569)  (4,450)
Tangible assets  $ 1,999,861  $ 1,105,851  $ 1,114,680  $ 1,126,182  $ 1,108,772
           
Total common equity  $ 255,041  $ 195,804  $ 194,186  $ 192,816  $ 190,054
Less: intangible assets  (32,772)  (4,337)  (4,439)  (4,569)  (4,450)
Tangible common equity  $ 222,269  $ 191,467  $ 189,747  $ 188,247  $ 185,604
           
Tangible common equity  $ 222,269  $ 191,467  $ 189,747  $ 188,247  $ 185,604
Divided by: tangible assets  $ 1,999,861  $ 1,105,851  $ 1,114,680  $ 1,126,182  $ 1,108,772
Tangible common equity to tangible assets 11.11% 17.31% 17.02% 16.72% 16.74%
           
Tangible book value per share           
Issued and outstanding shares  44,575,853  32,706,627  32,706,627  32,643,627  32,643,627
Add: dilutive stock options  19,640  187  35  31  --
Less: nondilutive restricted awards  (568,260)  (568,260)  (568,260)  (568,260)  (568,260)
Period end dilutive shares  44,027,233  32,138,554  32,138,402  32,075,398  32,075,367
           
Tangible common equity  $ 222,269  $ 191,467  $ 189,747  $ 188,247  $ 185,604
Divided by: period end dilutive shares  44,027,233  32,138,554  32,138,402  32,075,398  32,075,367
Tangible common book value per share  $ 5.05  $ 5.96  $ 5.90  $ 5.87  $ 5.79
           
Adjusted allowance for loan losses           
Allowance for loan losses  $ 10,591  $ 9,207  $ 9,431  $ 9,556  $ 10,154
Plus: acquisition accounting net FMV adjustments to acquired loans  53,593  21,512  24,264  31,957  35,146
Adjusted allowance for loan losses  $ 64,184  $ 30,719  $ 33,695  $ 41,513  $ 45,300
Divided by: total loans (excluding LHFS)  $ 1,356,833  $ 708,283  $ 712,506  $ 727,862  $ 759,047
Adjusted allowance for loan losses to total loans 4.73% 4.34% 4.73% 5.70% 5.97%
CONTACT: David Gaines         Chief Financial Officer         (704) 716-2134         dave.gaines@parksterlingbank.com

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