Park Sterling Corporation Announces Record Operating Results For First Quarter 2013

CHARLOTTE, N.C., April 25, 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 first quarter of 2013. Highlights at and for the three months ended March 31, 2013 include:

Highlights
  • Net income available to common shareholders increased 151% from prior quarter to $3.2 million, or $0.07 per share
  • Adjusted net income available to common shareholders, which excludes merger-related expenses, increased 7% from prior quarter to $3.8 million, or $0.09 per share
  • Net interest margin decreased to 4.15% from 4.36% at December 31, 2012
  • Adjusted net interest margin, which excludes accelerated accretion of net acquisition accounting fair market value adjustments, increased to 4.15% from 4.13% at December 31, 2012
  • Nonperforming loans decreased to 1.29% of total loans from 1.31% at December 31, 2012
  • Nonperforming assets decreased to 1.93% of total assets from 2.11% at December 31, 2012
  • Tangible common equity to tangible assets increased to 11.51% from 11.05% at December 31, 2012
  • Completed deployment of new data network utilizing a Citrix®-based private cloud solution
  • Completed conversion of former Citizens South Bank customers to Park Sterling's Jack Henry SilverLake System® core operating platform
  • Well positioned to pursue discussions regarding potential additional strategic partnerships

"Park Sterling's first quarter results confirm the progress achieved in executing our growth strategies," 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, increasing 7% to $3.8 million, or $0.09 per share, for the three months ended March 31, 2013 compared to the fourth quarter of 2012. Our metropolitan markets continued to post strong results by generating $7.8 million in net loan originations during the period, representing a 7% annualized growth rate. We also posted continued growth and resulting record revenues in both our mortgage banking and wealth management operations. In addition, we benefited from surpassing our targeted $2.5 million in quarterly cost savings from the merger with Citizens South and remain well positioned to invest in future growth opportunities.

Asset quality continued to improve during the first quarter and remains a strength of our company. Nonperforming loans decreased as a percentage of total loans from 1.31% at December 31, 2012 to 1.29% at March 31, 2013. Nonperforming assets similarly decreased as a percentage of total assets from 2.11% to 1.93%. Approximately 58% of Park Sterling's loans continue to carry acquisition accounting related net fair market value adjustments, which we believe will help buffer future results against potential loan losses. Adjusted allowance for loan losses, which combines our normal allowance and these loan marks, represented 4.54% of total loans at quarter-end. Annualized net charge-offs for the quarter represented a modest 0.05% of average loans, and we posted a net recovery of 0.08% when adjusting losses for the impact of acquisition accounting related to purchase credit impaired (PCI) loans. Finally, we posted a $428,000 net gain from the operation of OREO for the period, reflecting both continued improvement in our operating markets and prudent carrying values. We continue to 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.

Also during the quarter, we implemented a new data network, utilizing a Citrix ®-based private cloud solution, and completed conversion of the former Citizens South's customer base to Park Sterling's Jack Henry SilverLake ® core operating platform. As a result of those successful efforts, Park Sterling is now well positioned to pursue discussions regarding potential additional strategic partnerships. We remain confident in our ability to unite with attractive, like-minded partners that share Park Sterling's vision of building a full-service regional community bank across our target markets."

First Quarter 2013 Financial Results

Income Statement

Park Sterling reported a 151% increase in net income available to common shareholders to a record $3.2 million, or $0.07 per share, for the three months ended March 31, 2013 ("2013Q1"). This compares to net income of $1.3 million, or $0.03 per share, for the three months ended December 31, 2012 ("2012Q4") and net income of $1.7 million, or $0.05 per share, for the three months ended March 31, 2012 ("2012Q1"). The increase from 2012Q4 resulted primarily from continued improvements in asset quality, as reflected in a lower provision for loan losses and a net gain from the operation of OREO, and the realization of additional merger cost savings. The increase from 2012Q1 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, combined with continued organic growth.

Park Sterling reported a 7% increase in adjusted net income available to common shareholders, which excludes merger related expenses, to a record $3.8 million, or $0.09 per share, for 2013Q1. This compares to adjusted net income available to common shareholders of $3.5 million, or $0.08 per share, for 2012Q4 and of $2.4 million, or $0.07 per share, for 2012Q1. The increase in adjusted net income available to common shareholders from 2012Q4 again reflects improvements in asset quality and additional cost savings, while the increase from 2012Q1 primarily reflects higher earning assets, net interest margin and noninterest income associated with the merger with Citizens South, combined with continued organic growth.

Net interest income totaled $17.7 million for 2013Q1, which represented a $1.8 million, or 9%, decrease from $19.5 million for 2012Q4, and a $6.0 million, or 51%, increase from $11.7 million for 2012Q1. Average earning assets decreased $50.6 million, or 3%, from 2012Q4 to $1.7 billion at 2013Q1, which included a $42.0 million, or 3%, decrease in average loans to $1.3 billion, driven by a drop in acquired loans (see "Balance Sheet" below). Average earning assets increased $718.6 million, or 71%, from 2012Q1, which included a $600.2 million, or 80%, increase in average loans, driven by the merger with Citizens South.

Net interest margin was 4.15% in 2013Q1, representing a 21 basis point decrease from 4.36% in 2012Q4 and a 50 basis point decrease from 4.65% in 2012Q1. Adjusted net interest margin, which excludes accelerated interest income, was 4.15% in 2013Q1, representing a 2 basis point improvement from 4.13% in 2012Q4 and an 8 basis point improvement from 4.07% in 2012Q1. Accelerated interest income, which totaled $1.0 million in 2012Q4 and $1.4 million in 2012Q1, primarily reflects accelerated accretion of credit and interest rate marks resulting 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. There was no accelerated interest income in 2013Q1.

Provision for loan losses was $309,000 for 2013Q1, compared to $994,000 for 2012Q4 and $123,000 for 2012Q1. Results for 2013Q1 were driven by $436,000 of provision expense associated with acquired loans resulting from impairment in one of the company's six PCI loan pools associated with the merger with Community Capital Corporation (Community Capital). Results for 2012Q4 included $906,000 of provision expense associated with acquired loans, comprised of a $676,000 impairment in two of the company's six PCI loan pools associated with the merger with Community Capital and a $230,000 qualitative allowance associated with performing loans acquired in the merger with Citizens South.   

Noninterest income decreased $240,000, or 6%, to $3.6 million for 2013Q1, compared to $3.8 million in 2012Q4. Mortgage banking income increased $153,000, or 19%, to a record $968,000, including $89,000 from revenue recognition associated with ASC 815-10-S99-1 (formerly Staff Accounting Bulletin 109), in part due to an increased pipeline of mortgage loans and origination capacity resulting from the merger with Citizens South. Income from wealth management activities increased $15,000, or 2%, to a record $708,000. These increases were, however, offset by decreases in service charges on deposit accounts, driven by lower NSF fees, and decreased other noninterest income, driven by lower claims on FDIC loss share agreements. ATM and card income also decreased during the period due, in part, to timing issues related to vendor conversion.

Noninterest expenses decreased $4.2 million, or 21%, in 2013Q1 to $16.0 million, compared to $20.3 million in 2012Q4 and increased $5.0 million, or 46%, from $11.0 million in 2012Q1. Adjusted noninterest expenses, which excludes merger-related expenses of $836,000, $3.2 million and $930,000 for 2013Q1, 2012Q4 and 2012Q1, respectively, decreased $1.9 million, or 11%, to $15.1 million in 2013Q1 compared to $17.1 million in 2012Q4, and increased $5.1 million, or 51%, compared to $10.1 million in 2012Q1. The decrease in adjusted noninterest expenses from 2012Q4 resulted from a $623,000, or 7%, decrease in employee related expenses, reflecting continued cost reduction efforts following the merger with Citizens South, and a $1.6 million, or 137%, swing in OREO operating costs from an expense of $1.2 million to a gain of $428,000, reflecting continued success in resolving problem assets. The increase in adjusted noninterest expenses from 2012Q1 resulted primarily from the merger with Citizens South.              

Balance Sheet

Total assets decreased $49.2 million, or 2%, to $1.98 billion at 2013Q1 compared to total assets of $2.03 billion at 2012Q4. Cash and equivalents decreased $61.9 million, or 34%, to $122.2 million during the quarter. Approximately $52.0 million of this decrease resulted from the redeployment of funds into the securities portfolio, which totaled $305.0 million at 2013Q1, and approximately $9.9 million was utilized to reduce higher-priced deposits. Total loans, which exclude loans held for sale, decreased $27.0 million, or 2%, to $1.3 billion at 2013Q1, including $91.9 million in covered loans. This decrease included a managed $18.3 million, or 8%, decline in less attractive PCI loans. The remainder of the decrease resulted from a decline in other acquired loans. Our metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina and Greenville and Charleston, South Carolina, generated net loan originations of $7.8 million during the quarter, representing a 7% annualized growth rate. This origination activity remains somewhat tempered by aggressive competition with respect to term structure and interest rates, as well as by continued general softness in the economy.  

Loan mix did not shift materially during the first quarter. Total consumer loans remained at 31% of total loans at 2013Q1, with residential mortgages and home equity lines of credit remaining at 14% and 12% of total loans, respectively. The combination of commercial and industrial and owner-occupied real estate loans remained the largest category at 30% of total loans at 2013Q1, but declined from 31% of total loans at 2012Q4. Investor owned commercial real estate represented 28% of total loans compared to 27% at 2012Q4. Acquisition, construction and development (A,C&D) loans represented 11% of total loans compared to 10% at 2012Q4. Approximately 25% of this A,C&D exposure is held net of acquisition accounting fair market value adjustments on PCI loans.          

In terms of accounting designations, PCI loans decreased $18.3 million, or 8%, during 2013Q1 to $216.0 million (16% of total loans), acquired performing loans decreased $58.4 million, or 10%, to $556.1 million (42% of total loans), and non-acquired loans increased $49.7 million, or 10%, to $557.6 million (42% of total loans). Non-acquired loans include certain renewed and/or restructured acquired performing loans that are redesignated as non-acquired, which accounts for the difference between growth in this accounting category and the earlier mentioned net growth in loan originations in our metropolitan markets. Acquired performing loans include a remaining $7.9 million net acquisition accounting fair market value adjustment, representing a 1.41% "mark," and PCI loans include a remaining $17.6 million net acquisition accounting fair market value adjustment, representing a 16.13% "mark." Period end accretable yield, which is an estimate of future interest income on a level-yield basis over the life of PCI loans, increased $2.8 million, or 7%, to $45.6 million at 2013Q1 due to an increase in expected cash flows.             

Total deposits decreased $37.2 million, or 2%, to $1.59 billion at 2013Q1 compared to $1.63 billion at 2012Q4. Noninterest bearing demand deposits increased $13.4 million, or 6%, to $256.9 million (16% of total deposits) as a result of continued focus on this category. Money market, NOW and savings deposits decreased $25.2 million, or 3%, to $733.5 million (46% of total deposits), due in part to post-merger repricing strategies. Local time deposits decreased $18.1 million, or 3%, to $500.7 million (31% of total deposits), due again in part to post-merger repricing strategies. Finally, brokered deposits decreased $7.2 million, or 7%, to $103.8 million (7% of total deposits) as management elected not to renew maturing certificates.   

Total borrowings decreased $14.7 million, or 14%, to $87.1 million at 2013Q1 compared to $101.7 million at 2012Q4, due to a reduction in Federal Home Loan Bank (FHLB) advances. Borrowings at 2013Q1 included $55.0 million in FHLB borrowings, $14.8 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 $3.3 million, or 1%, to $279.0 million at 2013Q1 compared to $275.5 million at 2012Q4, driven by higher retained earnings. Total shareholders' equity includes $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. The company's ratio of tangible common equity to tangible assets increased to 11.51% at 2013Q1 from 11.05% at 2012Q4 as a result of the increase in equity and decrease in total assets. Similarly, the Tier 1 leverage ratio increased to 11.72% at 2013Q1 from 11.25% at 2012Q4. 

A revision to the net acquisition accounting fair market value adjustments associated with the FDIC receivable for loss share agreements led to a $1.6 million, or 7%, increase in goodwill resulting from the merger with Citizens South to $24.7 million at 2013Q1 and 2012Q4, compared to the originally reported $23.1 million at 2012Q4. This revision reflects a measurement period adjustment to increase expected cash flows from 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 first quarter and remains a point of strength for the company. Nonperforming loans decreased $708,000, or 4%, to $17.1 million at 2013Q1, or 1.29% of total loans, compared to $17.8 million at 2012Q4, or 1.31% of total loans. Nonperforming assets decreased $4.5 million, or 11%, to $38.4 million at 2013Q1, or 1.93% of total assets, compared to $42.9 million at 2012Q4, or 2.11% of total assets. Nonperforming assets include $7.7 million of covered OREO for which the company expects certain losses to be reimbursed under the FDIC loss share agreements. The company reported net charge-offs of $151,000, or 0.05% of average loans (annualized), in 2013Q1, compared to a net recovery of $390,000 in 2012Q4, or 0.11% of average loans (annualized). Excluding the recognition of previously expensed impairments on PCI loans, the company reported a net recovery of $264,000, or 0.08% of average loans (annualized), in 2013Q1.

The allowance for loan losses was $10.7 million, or 0.81% of total loans at 2013Q1, compared to $10.6 million, or 0.78% of total loans at 2012Q4. Adjusted allowance for loan losses, which includes the allowance for loan losses and net acquisition accounting fair market value adjustments for acquired performing and PCI loans, represented 4.54% of total loans at 2013Q1 compared to 4.74% at 2012Q4. 

During the first quarter of 2011, and as contemplated in Park Sterling's 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 (April 25, 2013). The conference call can be accessed by dialing (888) 317-6016 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 10027637.

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 approximately $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 services. 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 available to common shareholders, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, adjusted allowance for loan losses, adjusted net charge-offs/ recoveries, 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 closings, 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 or soft 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)   March 31,   December 31,   September 30,   June 30,   March 31, 
  2013 2012 2012 2012 2012
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 Interest income           
 Loans, including fees   $ 18,140  $ 20,269  $ 10,346  $ 10,416  $ 12,110
 Taxable investment securities   866  792  826  969  1,020
 Tax-exempt investment securities   190  191  187  186  185
 Nonmarketable equity securities   48  80  22  28  64
 Interest on deposits at banks   62  79  34  28  10
 Federal funds sold   17  11  16  15  8
 Total interest income   19,323  21,422  11,431  11,642  13,397
 Interest expense           
 Money market, NOW and savings deposits   407  491  339  333  326
 Time deposits   608  777  632  720  821
 Short-term borrowings   6  7  --  --  3
 FHLB advances   137  143  149  148  161
 Subordinated debt   429  472  340  341  367
 Total interest expense   1,587  1,890  1,460  1,542  1,678
 Net interest income   17,736  19,532  9,971  10,100  11,719
 Provision for loan losses   309  994  7  899  123
 Net interest income after provision   17,427  18,538  9,964  9,201  11,596
 Noninterest income           
 Service charges on deposit accounts   764  879  324  299  314
 Mortgage banking income   968  815  662  540  461
 Income from wealth management activities   708  693  665  661  599
 ATM and card income   598  664  207  223  228
 Income from bank-owned life insurance   381  450  294  260  259
 Gain on sale of securities available for sale   --  --  989  489  --
 Other noninterest income   149  307  177  91  94
 Total noninterest income   3,568  3,808  3,318  2,563  1,955
 Noninterest expenses           
 Salaries and employee benefits   8,778  11,041  6,314  5,871  6,118
 Occupancy and equipment   1,908  1,942  928  910  820
 Data processing and outside service fees   1,653  1,599  784  696  1,291
 Legal and professional fees   893  1,077  1,181  614  312
 Deposit charges and FDIC insurance   487  473  261  250  291
 Communication fees   432  319  198  196  232
 Postage and supplies   329  360  112  124  196
 Loan and collection expense   326  248  434  295  244
 Core deposit intangible amortization   257  257  102  102  102
 Advertising and promotion   220  367  144  108  161
 Net cost of operation of other real estate owned   (428)  1,167  964  809  522
 Other noninterest expense   1,176  1,403  781  860  714
 Total noninterest expenses   16,031  20,253  12,203  10,835  11,003
 Income before income taxes   4,964  2,093  1,079  929  2,548
 Income tax expense   1,724  771  459  251  825
 Net income   3,240  1,322  620  678  1,723
 Preferred dividends   51  51  --  --  --
 Net income available to common shares   $ 3,189  $ 1,271  $ 620  $ 678  $ 1,723
           
 Earnings per common share, fully diluted   $ 0.07  $ 0.03  $ 0.02  $ 0.02  $ 0.05
 Weighted average diluted common shares   44,069,053  44,025,874  32,138,554  32,120,402  32,075,398
           
           
PARK STERLING CORPORATION           
CONDENSED CONSOLIDATED BALANCE SHEETS           
($ in thousands)   March 31,   December 31,   September 30,   June 30,   March 31, 
  2013 2012* 2012 2012 2012
   (Unaudited)     (Unaudited)   (Unaudited)   (Unaudited) 
 ASSETS           
 Cash and due from banks   $ 19,249  $ 36,716  $ 47,115  $ 15,898  $ 18,016
 Interest-earning balances at banks   51,861  101,431  37,256  29,795  15,567
 Investment securities available-for-sale   299,073  245,571  186,802  222,221  232,464
 Nonmarketable equity securities   5,913  7,422  4,599  5,470  8,510
 Federal funds sold   51,155  45,995  22,165  29,455  20,085
 Loans held for sale   11,659  14,147  6,095  5,331  8,055
 Loans - Non-covered   1,237,813  1,255,019  708,283  712,506  727,862
 Loans - Covered   91,936  101,688  --  --  --
 Allowance for loan losses   (10,749)  (10,591)  (9,207)  (9,431)  (9,556)
 Net loans   1,319,000  1,346,116  699,076  703,075  718,306
           
 Premises and equipment, net   57,596  57,222  26,729  24,619  24,371
 FDIC receivable for loss share agreements   15,340  18,697  --  --  --
 Other real estate owned - non-covered   13,597  18,427  13,028  14,744  16,674
 Other real estate owned - covered   7,654  6,646  --  --  --
 Bank-owned life insurance   46,546  46,133  26,945  26,689  26,456
 Deferred tax asset   40,843  42,629  29,087  29,841  30,143
 Goodwill   24,717  24,717  622  622  649
 Core deposit intangible   9,401  9,658  3,715  3,817  3,920
 Other assets   9,967  11,267  6,954  7,542  7,535
           
 Total assets   $ 1,983,571  $ 2,032,794  $ 1,110,188  $ 1,119,119  $ 1,130,751
           
 LIABILITIES AND SHAREHOLDERS' EQUITY           
           
 Deposits:           
 Demand noninterest-bearing   $ 256,931  $ 243,495  $ 165,899  $ 158,838  $ 148,929
 Money market, NOW and savings   733,493  758,763  341,788  332,648  329,633
 Time deposits   604,397  629,746  323,988  350,548  377,875
 Total deposits   1,594,821  1,632,004  831,675  842,034  856,437
           
 Short-term borrowings   10,368  10,143  1,135  1,678  852
 FHLB advances   55,000  70,000  55,000  55,000  55,000
 Subordinated debt   21,692  21,573  12,592  12,494  12,396
 Accrued expenses and other liabilities   22,705  23,372  13,982  13,727  13,250
 Total liabilities   1,704,586  1,757,092  914,384  924,933  937,935
           
 Shareholders' equity:           
 Preferred stock   20,500  20,500  --  --  --
 Common stock   44,648  44,576  32,707  32,707  32,644
 Additional paid-in capital   221,450  220,996  173,826  173,318  172,873
 Accumulated deficit   (10,379)  (13,568)  (14,839)  (15,459)  (16,137)
 Accumulated other comprehensive income   2,766  3,198  4,110  3,620  3,436
 Total shareholders' equity   278,985  275,702  195,804  194,186  192,816
           
 Total liabilities and shareholders' equity   $ 1,983,571  $ 2,032,794  $ 1,110,188  $ 1,119,119  $ 1,130,751
           
 Common shares issued and outstanding   44,648,165  44,575,853  32,706,627   32,706,627  32,643,627
           
* Derived from audited financial statements. Revised to reflect measurement period adjustments to goodwill.
           
           
PARK STERLING CORPORATION          
SUMMARY OF LOAN PORTFOLIO          
($ in thousands)          
  March 31, December 31, September 30, June 30, March 31,
  2013 2012* 2012 2012 2012
BY LOAN TYPE (Unaudited)   (Unaudited) (Unaudited) (Unaudited)
Commercial:          
Commercial and industrial  $ 118,796  $ 119,132  $ 70,155  $ 67,821  $ 72,094
Commercial real estate - owner-occupied  285,353  299,417  161,360  161,467  166,064
Commercial real estate - investor income producing  367,434  371,956  206,808  197,368  193,641
Acquisition, construction and development  140,869  140,661  81,027  86,612  87,065
Other commercial  4,894  5,628  13,059  13,486  13,518
Total commercial loans  917,346  936,794  532,409  526,754  532,382
           
Consumer:          
Residential mortgage  180,368  188,532  58,062  66,876  75,377
Home equity lines of credit  156,802  163,625  82,690  83,661  86,029
Residential construction  55,205  52,811  25,872  25,559  24,670
Other loans to individuals  20,237  15,554  9,839  10,119  9,635
Total consumer loans  412,612  420,522  176,463  186,215  195,711
Total loans  1,329,958  1,357,316  708,872  712,969  728,093
Deferred costs (fees)  (209)  (609)  (589)  (463)  (231)
Total loans, net of deferred costs (fees)  $ 1,329,749  $ 1,356,707  $ 708,283  $ 712,506  $ 727,862
           
* Derived from audited financial statements.          
           
  March 31, December 31, September 30, June 30, March 31,
  2013 2012 2012 2012 2012
BY ACQUIRED AND NON-ACQUIRED** (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Acquired loans - performing  $ 556,135  $ 614,518  $ 246,267  $ 262,104  $ 285,174
Acquired loans - purchase credit impaired  215,968  234,282  42,823  48,045  55,843
Total acquired loans  772,103  848,800  289,090  310,149  341,017
Non-acquired loans, net of deferred costs (fees)  557,646  507,907  419,193  402,357  386,845
Total loans  $ 1,329,749  $ 1,356,707  $ 708,283  $ 712,506  $ 727,862
           
** 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) March 31, December 31, September 30, June 30, March 31,
  2013 2012 2012 2012 2012
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of period allowance  $ 10,591  $ 9,207  $ 9,431  $ 9,556  $ 10,154
Provision for loan losses  309  994  7  899  123
Loans charged-off  (782)  (330)  (1,102)  (1,262)  (828)
Recoveries of loans charged-off  631  720  871  238  107
End of period allowance  10,749  10,591  9,207  9,431  9,556
           
Net charge-offs (recoveries)  $ 151  $ (390)  $ 231  $ 1,024  $ 721
Net charge-offs (recoveries) to average loans 0.05% -0.11% 0.13% 0.56% 0.39%
(annualized)          
   
             
             
PARK STERLING CORPORATION            
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS             
THREE MONTHS            
($ in thousands) March 31, 2013     March 31, 2012    
  Average Income/ Yield/ Average Income/ Yield/
  Balance Expense Rate Balance Expense Rate (3)
Assets            
Interest-earning assets:            
Loans with fees (1)(2)  $ 1,346,603  $ 18,140 5.46%  $ 746,433  $ 12,110 6.53%
Fed funds sold  46,081  17 0.15%  13,116  8 0.25%
Taxable investment securities  244,899  866 1.41%  214,467  1,020 1.90%
Tax-exempt investment securities  17,896  190 4.25%  17,824  185 4.15%
Other interest-earning assets  76,887  110 0.58%  21,920  74 1.36%
             
Total interest-earning assets  1,732,366  19,323 4.52%  1,013,760  13,397 5.32%
             
Allowance for loan losses  (11,716)      (9,833)    
Cash and due from banks  30,111      17,059    
Premises and equipment  57,388      24,509    
Goodwill  23,346      461    
Intangible assets  9,487      3,954    
Other assets  137,162      82,262    
             
Total assets  $ 1,978,144      $ 1,132,172    
             
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
Interest-bearing demand  $ 304,179  $ 90 0.12%  $ 78,571  $ 64 0.33%
Savings and money market  435,943  317 0.29%  246,726  262 0.43%
Time deposits - core  506,557  330 0.26%  235,657  423 0.72%
Time deposits - brokered  107,324  278 1.05%  145,251  398 1.10%
Total interest-bearing deposits  1,354,003  1,015 0.30%  706,205  1,147 0.65%
Federal Home Loan Bank advances  55,167  137 1.01%  58,297  161 1.11%
Subordinated debt  21,628  429 8.04%  12,363  367 11.94%
Other borrowings  9,146  6 0.27%  2,501  3 0.48%
Total borrowed funds  85,941  572 2.70%  73,161  531 2.92%
             
Total interest-bearing liabilities  1,439,944  1,587 0.45%  779,366  1,678 0.87%
             
Net interest rate spread    17,736 4.08%    11,719 4.45%
             
Noninterest-bearing demand deposits  240,263      145,724    
Other liabilities  19,203      14,446    
Shareholders' equity  278,734      192,636    
             
Total liabilities and shareholders' equity  $ 1,978,144      $ 1,132,172    
             
Net interest margin      4.15%     4.65%
Net interest margin (fully tax-equivalent) (4)     4.19%     4.69%
             
(1) Nonaccrual loans are included in the average loan balances.           
(2) Interest income and yields for the three months ended March 31, 2013 and 2012 include accretion from acquisition accounting adjustments associated
 with acquired loans.            
(3) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.
(4) Fully tax-equivalent basis at 34.40% and 32.39% tax rate at March 31, 2013 and 2012, respectively, for nontaxable securities and loans.
           
           
           
PARK STERLING CORPORATION          
SELECTED RATIOS          
($ in thousands, except per share amounts) March 31, December 31, September 30, June 30, March 31,
  2013 2012 2012 2012 2012
  Unaudited Unaudited Unaudited Unaudited Unaudited
ASSET QUALITY          
Nonaccrual loans  $ 9,725  $ 10,374  $ 9,792  $ 16,757  $ 17,703
Troubled debt restructuring  7,383  7,367  7,390  3,428  3,451
Past due 90 days plus (and still accruing)  2  77  164  131  698
Nonperforming loans  17,110  17,818  17,346  20,316  21,852
OREO  21,251  25,073  13,028  14,744  16,674
Nonperforming assets  38,361  42,891  30,374  35,060  38,526
Past due 30-59 days (and still accruing)  1,250  607  1,040  992  742
Past due 60-89 days (and still accruing)  521  121  561  74  764
           
Nonperforming loans to total loans 1.29% 1.31% 2.45% 2.85% 3.00%
Nonperforming assets to total assets 1.93% 2.11% 2.74% 3.13% 3.41%
Allowance to total loans 0.81% 0.78% 1.30% 1.32% 1.31%
Allowance to nonperforming loans 62.82% 59.44% 53.08% 46.42% 43.73%
Allowance to nonperforming assets 28.02% 24.69% 30.31% 26.90% 24.80%
Past due 30-89 days (accruing) to total loans 0.13% 0.05% 0.23% 0.15% 0.21%
Net charge-offs (recoveries) to average loans 0.05% -0.11% 0.13% 0.56% 0.39%
(annualized)          
           
CAPITAL          
Book value per common share  $ 5.87  $ 5.80  $ 6.09  $ 6.04  $ 6.01
Tangible book value per common share**  $ 5.09  $ 5.02  $ 5.96  $ 5.90  $ 5.87
Common shares outstanding  44,648,165  44,575,853  32,706,627  32,706,627  32,643,627
Average dilutive common shares outstanding  44,069,053  44,025,874  32,138,554  32,138,402  32,075,398
           
Tier 1 capital  $ 223,307  $ 219,060  $ 165,345  $ 162,167  $ 161,337
Tier 2 capital  17,644  17,611  16,103  16,326  16,451
Total risk based capital  240,951  236,671  181,447  178,494  177,788
Risk weighted assets  1,436,350  1,452,229  774,035  769,382  786,703
Average assets for leverage ratio  1,906,061  1,947,156  1,074,410  1,087,079  1,092,468
           
Tier 1 ratio 15.55% 15.08% 21.36% 21.08% 20.51%
Total risk based capital ratio 16.78% 16.30% 23.44% 23.20% 22.60%
Tier 1 leverage ratio 11.72% 11.25% 15.39% 14.92% 14.77%
Tangible common equity to tangible assets** 11.51% 11.05% 17.31% 17.02% 16.72%
           
LIQUIDITY          
Net loans to total deposits 82.71% 82.48% 84.06% 83.50% 83.87%
Reliance on wholesale funding 11.35% 12.27% 22.24% 23.02% 23.98%
           
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)        
Return on Average Assets 0.65% 0.25% 0.22% 0.24% 0.61%
Return on Average Common Equity 5.01% 1.96% 1.26% 1.40% 3.60%
Net interest margin (non-tax equivalent) 4.15% 4.36% 3.97% 4.01% 4.65%
           
INCOME STATEMENT (ANNUAL RESULTS)          
Return on Average Assets n/a 0.32% n/a n/a n/a
Return on Average Equity n/a 1.99% n/a n/a n/a
Net interest margin (non-tax equivalent) n/a 4.27% n/a n/a n/a
           
** Non-GAAP financial measure

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income available to common shareholders, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, adjusted allowance for loan losses, adjusted net charge-offs/ recoveries, 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) and adjusted net charge-offs/ recoveries (which exclude the impact of acquisition accounting related to PCI loans) to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and (iii) adjusted net income, 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 accretion of net acquisition accounting fair market value adjustments), and adjusted return on average assets and adjusted return on average equity (which excludes merger-related expenses and gain on sale of securities) to evaluate core earnings 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)   March 31,   December 31,   September 30,   June 30,   March 31, 
  2013 2012 2012 2012 2012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Adjusted net income           
Pretax income (as reported)  $ 4,964  $ 2,093  $ 1,079  $ 929  $ 2,548
Plus: merger-related expenses  836  3,167  1,364  434  930
Less: gain on sale of securities  --  --  (989)  (489)  --
Adjusted pretax income  5,800  5,260  1,454  874  3,478
Tax expense  1,995  1,691  467  281  1,118
Adjusted net income  $ 3,805  $ 3,569  $ 987  $ 593  $ 2,360
Preferred dividends  51  51  --   --   -- 
Adjusted net income available to common shareholders  $ 3,754  $ 3,518  $ 987  $ 593  $ 2,360
           
Divided by: weighted average diluted shares  44,069,053  44,025,874  32,138,554  32,120,402  32,075,398
Adjusted net income available to common shareholders per share  $ 0.09  $ 0.08  $ 0.03  $ 0.02  $ 0.07
Estimated tax rate 34.40% 32.15% 32.15% 32.15% 32.15%
           
Adjusted net interest margin           
Net interest income (as reported)  $ 17,736  $ 19,532  $ 9,971  $ 10,100  $ 11,719
Less: accelerated mark accretion  --  (921)  17  (277)  (1,469)
Less: other accelerated accretion  --  (121)  --  --  --
Adjusted net interest income  17,736  18,490  9,988  9,823  10,250
Divided by: average earning assets  1,732,366  1,782,922  998,669  1,012,570  1,013,760
Multiplied by: annualization factor  4.06  3.98  3.98  4.02  4.02
Adjusted net interest margin 4.15% 4.13% 3.98% 3.90% 4.07%
Net interest margin 4.15% 4.36% 3.97% 4.01% 4.65%
           
Adjusted noninterest income           
Noninterest income (as reported)  $ 3,568  $ 3,808  $ 3,318  $ 2,563  $ 1,955
Less: gain on sale of securities  --  --  (989)  (489)  --
Adjusted noninterest income  $ 3,568  $ 3,808  $ 2,329  $ 2,074  $ 1,955
           
Adjusted noninterest expense           
Noninterest expense (as reported)  $ 16,031  $ 20,253  $ 12,203  $ 10,835  $ 11,003
Less: merger-related expenses  (836)  (3,167)  (1,364)  (434)  (930)
Adjusted noninterest expense  15,195  17,086  10,839  10,401  10,073
           
Adjusted return on average assets           
Adjusted net income available to common shareholders  $ 3,754  $ 3,518  $ 987  $ 593  $ 2,360
Divided by: average assets  1,978,144  2,020,662  1,112,923  1,127,031  1,131,360
Multiplied by: annualization factor  4.06  3.98  3.98  4.02  4.02
Adjusted return on average assets 0.77% 0.69% 0.35% 0.21% 0.84%
Return on average assets 0.65% 0.25% 0.22% 0.24% 0.61%
           
Adjusted return on average equity           
Adjusted net income available to common shareholders  $ 3,754  $ 3,518  $ 987  $ 593  $ 2,360
Divided by: average common equity  258,234  257,335  196,013  194,345  192,398
Multiplied by: annualization factor  4.06  3.98  3.98  4.02  4.02
Adjusted return on average equity 5.90% 5.44% 2.00% 1.23% 4.93%
Return on average equity 5.01% 1.96% 1.26% 1.40% 3.60%
           
           
 PARK STERLING CORPORATION           
 RECONCILIATION OF NON-GAAP MEASURES           
 ($ in thousands, except per share amounts)           
 (three month and period end results unless otherwise stated)   March 31,   December 31,   September 30,   June 30,   March 31, 
  2013 2012 2012 2012 2012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Tangible common equity to tangible assets           
Total assets  $ 1,983,571  $ 2,032,794  $ 1,110,188  $ 1,119,119  $ 1,130,751
Less: intangible assets  (34,118)  (34,375)  (4,337)  (4,439)  (4,569)
Tangible assets  $ 1,949,453  $ 1,998,419  $ 1,105,851  $ 1,114,680  $ 1,126,182
           
Total common equity  $ 258,485  $ 255,202  $ 195,804  $ 194,186  $ 192,816
Less: intangible assets  (34,118)  (34,375)  (4,337)  (4,439)  (4,569)
Tangible common equity  $ 224,367  $ 220,827  $ 191,467  $ 189,747  $ 188,247
           
Tangible common equity  $ 224,367  $ 220,827  $ 191,467  $ 189,747  $ 188,247
Divided by: tangible assets  $ 1,949,453  $ 1,998,419  $ 1,105,851  $ 1,114,680  $ 1,126,182
Tangible common equity to tangible assets 11.51% 11.05% 17.31% 17.02% 16.72%
           
Tangible book value per share           
Issued and outstanding shares  44,648,165  44,575,853  32,706,627  32,706,627  32,643,627
Less: nondilutive restricted stock awards  (568,260)  (568,260)  (568,260)  (568,260)  (568,260)
Period end dilutive shares  44,079,905  44,007,593  32,138,367  32,138,367  32,075,367
           
Tangible common equity  $ 224,367  $ 220,827  $ 191,467  $ 189,747  $ 188,247
Divided by: period end dilutive shares  44,079,905  44,007,593  32,138,367  32,138,367  32,075,367
Tangible common book value per share  $ 5.09  $ 5.02  $ 5.96  $ 5.90  $ 5.87
           
Adjusted allowance for loan losses           
Allowance for loan losses  $ 10,749  $ 10,591  $ 9,207  $ 9,431  $ 9,556
Plus: acquisition accounting net FMV adjustments to acquired loans  49,633  53,719  21,512  24,264  31,957
Adjusted allowance for loan losses  $ 60,382  $ 64,310  $ 30,719  $ 33,695  $ 41,513
Divided by: total loans (excluding LHFS)  $ 1,329,749  $ 1,356,707  $ 708,283  $ 712,506  $ 727,862
Adjusted allowance for loan losses to total loans 4.54% 4.74% 4.34% 4.73% 5.70%
           
Adjusted net charge-offs/ recoveries           
Net charge-offs (recoveries)  $ 151  $ (390)  $ 231  $ 1,024  $ 721
Plus: impact of acquisition accounting related PCI loans  (415)  --  --  --  --
Adjusted net charge-offs (recoveries)  (264)  (390)  231  1,024  721
Divided by: average loans  1,335,224  1,388,627  719,397  729,163  746,433
Multiplied by: annualization factor  4.06  3.98  3.98  4.02  4.02
Adjusted net charge-offs (recoveries) (annualized) -0.08% -0.11% 0.13% 0.56% 0.39%
Net charge-offs (recoveries) (annualized) 0.05% -0.11% 0.13% 0.56% 0.39%
CONTACT: David Gaines         Chief Financial Officer         (704) 716-2134         david.gaines@parksterlingbank.com

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