Park Sterling Corporation Announces Results For Fourth Quarter 2013; Matches Prior Quarter Record Operating Results

CHARLOTTE, N.C., Jan. 30, 2014 (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 2013. Highlights at and for the three months ended December 31, 2013 include:

Highlights
  • Net income available to common shareholders of $4.0 million, or $0.09 per share, compared to $4.2 million, or $0.10 per share, in the prior quarter
  • Adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, of $4.3 million, or $0.10 per share, matching record results of $4.3 million, or $0.10 per share, in the prior quarter
  • Annualized return on average assets of 0.83% compared to 0.85% in the prior quarter
  • Adjusted annualized return on average assets, which excludes merger-related expenses and gain or loss on sale of securities, of 0.88% compared to 0.87% in the prior quarter
  • Nonperforming loans decreased to 0.95% of total loans from 1.11% at September 30, 2013
  • Nonperforming assets decreased to 1.37% of total assets from 1.52% at September 30, 2013
  • Tangible common equity increased to 11.79% of tangible assets from 11.78% at September 30, 2013
  • Declared quarterly cash dividend on common shares of $0.02 per share (January 2014)
  • Announced de novo entry into Virginia with opening of Richmond loan production office (January 2014)
  • Announced new leadership for operations and information technology, wealth management and mortgage banking (January 2014)

"Park Sterling's fourth quarter capped an exceptional year for the company," said James C. Cherry, Chief Executive Officer. "For the three months ended December 31, 2013, we reported strong operating results with adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, of $4.3 million, or $0.10 per share, which matched our record results from the prior quarter. For the twelve months ended December 31, 2013, we reported record operating results with adjusted net income available to common shareholders of $16.3 million, or $0.37 per share, compared to $7.5 million, or $0.21 per share, for the twelve months ended December 31, 2012.

Since our last earnings announcement, we finalized our long-awaited entry into Virginia by hiring three experienced bankers – Rob Leitch, Tom Zachry and Bobby Cowgill – to open a loan production office in Richmond. We also strengthened our management team by recruiting Mark Ladnier to lead operations and information technology, Michael Williams to lead wealth management, and Steve Farbstein to lead mortgage banking. In addition, we completed our initial sales and credit training initiatives in the retail bank, rolled-out the second phase of our new mobile banking platform, and introduced our new workplace banking retail product package. Finally, we completed implementation of a new human resources information system as part of our continuing commitment to improve both operating efficiency and our employee experience.

Fourth quarter earnings benefited from continued strength in our metro markets of Charlotte, Raleigh and Wilmington, North Carolina and Greenville and Charleston, South Carolina, which together posted loan growth of $8.0 million, or 6% annualized. The quarter also continued to benefit from good cost controls resulting from process improvements following the integration of Citizens South Banking Corporation ("Citizens South"). We are very pleased with our consistent performance throughout the year on both of these fronts. Asset quality improved from already sound levels, as nonperforming loans decreased to 0.95% of total loans from 1.11% in the prior quarter, and nonperforming assets decreased to 1.37% of total assets from 1.52%. The company remains proactive in addressing potential problem assets. During the quarter, we recorded $982,000 in aggregate reserves and charge-offs related to a deteriorating loan from the legacy Park Sterling portfolio. We also expensed approximately $430,000 from the write-down of certain obsolete acquired fixed assets, including one shuttered facility that was moved into other real estate owned. The cost of these actions was offset by a $1.1 million gain generated from settling, at a discount, the contingent underwriting fee liability remaining from Park Sterling Bank's public offering in 2010.

On the capital management front, the company repurchased approximately 56,000 shares at an average cost of $6.49 per share during the fourth quarter under our previously announced 2.2 million share authorization. In addition, yesterday the board declared a quarterly dividend of $0.02 per common share, payable on February 10, 2014 to all shareholders of record as of the close of business on February 24, 2014. Future dividends will be subject to board approval. We remain very well capitalized with tangible common equity to tangible assets of 11.79% and a Tier 1 leverage ratio of 11.63% at December 31, 2013.

Overall, we are pleased to report these strong financial results and believe that Park Sterling is well positioned to continue pursuing our growth strategies. We remain confident in our ability to both grow our existing franchise and to unite with attractive, like-minded partners that share Park Sterling's vision of building a full-service regional community bank."

Financial Results

Income Statement – Three Months Ended December 31, 2013

Park Sterling reported net income available to common shareholders of $4.0 million, or $0.09 per share, for the three months ended December 31, 2013 ("2013Q4"). This compares to net income available to common shareholders of $4.2 million, or $0.10 per share, for the three months ended September 30, 2013 ("2013Q3") and net income available to common shareholders of $1.3 million, or $0.03 per share, for the three months ended December 31, 2012 ("2012Q4"). The decrease in net income available to common shareholders from 2013Q3 resulted from lower net interest income and higher provision expense, which were partially offset by higher noninterest income, including a nontaxable $1.1 million gain generated from settling, at a discount, the contingent underwriting fee liability remaining from Park Sterling Bank's public offering in 2010.

Park Sterling reported adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, of $4.3 million, or $0.10 per share, in 2013Q4. This compares to adjusted net income available to common shareholders of $4.3 million, or $0.10 per share, in 2013Q3 and adjusted net income available to common shareholders of $3.6 million, or $0.08 per share, in 2012Q4. Compared to 2013Q3, adjusted net income available to common shareholders reflects higher noninterest income and sound expense controls, which were partially offset by lower net interest income and higher provision expense.

Net interest income totaled $17.7 million in 2013Q4, which represented a 3% decrease from $18.3 million in 2013Q3 and a 9% decrease from $19.5 million in 2012Q4, due both to lower average earning asset levels and to reduced net interest margin. Average total earning assets decreased $25.2 million, or 1%, in 2013Q4 to $1.72 billion, compared to $1.75 billion in 2013Q3 and decreased $60.6 million, or 3%, compared to $1.78 billion in 2012Q4. The reduction in 2013Q4 from 2013Q3 resulted from an $8.6 million, or 1%, decrease in average loans (excluding loans held for sale) to $1.31 billion and a $29.9 million, or 38%, decrease in average other earning assets, driven by reduced interest-earning balances at banks, which together more than offset a $13.4 million, or 4%, increase in average securities to $363.1 million. The reduction in 2013Q4 from 2012Q4 resulted from a $78.2 million, or 6%, decrease in average loans (excluding loans held for sale) and a $76.0 million, or 61%, decrease in average other earning assets, which together more than offset a $94.0 million, or 35%, increase in average securities.

Net interest margin was 4.08% in 2013Q4, representing an 8 basis point decrease from 4.16% in 2013Q3 and a 28 basis point decrease from 4.36% in 2012Q4. The reduction in net interest margin in 2013Q4 from 2013Q3 resulted primarily from a 14 basis point increase in the cost of interest-bearing liabilities, due to the expiration of accounting related fair market value adjustments on acquired deposits, which more than offset a 3 basis point increase in the yield on interest-earning assets. The reduction in net interest margin in 2013Q4 from 2012Q4 resulted primarily from a 27 basis point decrease in the yield on interest-earning assets, due to a decrease in accelerated accretion from net acquisition accounting fair market value adjustments on performing acquired loans and the aforementioned increase in the cost of interest-bearing liabilities. Accelerated accretion of net acquisition accounting fair market value adjustments, which totaled $365,000 in 2013Q4, $529,000 in 2013Q3 and $1.0 million in 2012Q4, 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.

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments, was 3.99% in 2013Q4, representing a 5 basis point decrease from 4.04% in 2013Q3 and a 14 basis point decrease from 4.13% in 2012Q4. The reduction in adjusted net interest margin in 2013Q4 from 2013Q3 resulted primarily from the increased cost of interest-bearing liabilities discussed above. The reduction in adjusted net interest margin in 2013Q4 from 2012Q4 resulted primarily from the decreased yield on interest-earning assets discussed above together with the increased cost of interest-bearing liabilities.

Provision expense increased $1.2 million, or 286%, to $780,000 in 2013Q4, compared to a $419,000 net release in 2013Q3 and decreased $214,000, or 22%, compared to $994,000 in 2012Q4. Provision expense in 2013Q4 was driven, in part, by $982,000 in combined reserves and charge-offs related to a single troubled debt restructuring that is now designated a nonaccrual loan. The net recovery in 2013Q3 reflected the reversal of previous impairments in the company's purchase credit impaired (PCI) loan pools, as accounted for under ASC 310-30. Provision expense in 2012Q4 included a $676,000 impairment in two of the company's PCI loan pools and a $230,000 qualitative allowance associated with performing loans acquired in the merger with Citizens South.

Noninterest income increased $1.2 million, or 35%, to $4.4 million in 2013Q4, compared to $3.3 million in 2013Q3 and increased $812,000, or 23%, compared to $3.6 million in 2012Q4. Adjusted noninterest income, which excludes gain or loss on sale of securities (loss of $6,000 in 2013Q4, $0 in 2013Q3 and $0 in 2012Q4), increased $1.2 million, or 35%, to $4.4 million in 2013Q4, compared to $3.3 million in 2013Q3 and increased $818,000, or 23%, compared to $3.6 million in 2012Q4. Results for 2013Q4 included a $1.1 million gain generated from settling, at a discount, the contingent underwriting fee liability remaining from Park Sterling Bank's public offering in August 2010. The company recorded the full $3.0 million amount of this fee as a liability on its balance sheet at the time of the offering. Payment to the underwriters was contingent upon the company's stock trading at a market price of $8.125 per share for thirty consecutive days. The company pursued this negotiated settlement in order to remove the liability from its balance sheet.   

The increase in noninterest income in 2013Q4 from 2013Q3 also included a $376,000, or 94%, increase in mortgage banking income due, in part, to a $291,000 benefit from ASC 815-10-S99-1 (formerly SAB 109). This increase in mortgage banking income was partially offset by an $8,000, or 1%, decrease in service charges on deposit accounts, a $62,000, or 7%, decrease in income from wealth management activities, and an $84,000, or 13%, decrease in net ATM and card income.

Noninterest expenses were flat in 2013Q4 at $15.7 million, compared to 2013Q3 and decreased $4.3 million, or 22%, compared to $20.0 million in 2012Q4. Adjusted noninterest expenses, which exclude merger-related expenses ($386,000 in 2013Q4, $167,000 in 2013Q3 and $3.2 million in 2012Q4), decreased $163,000, or 1%, in 2013Q4 to $15.3 million, compared to $15.5 million in 2013Q3 and decreased $1.5 million, or 9%, compared to $16.9 million in 2012Q4. The decrease in adjusted noninterest expenses in 2013Q4 from 2013Q3 included reductions in several expense categories, such as salaries and employee benefits, legal and professional fees, and loan and collection expenses. Data processing and service fees increased $121,000, or 9%, due in part to $75,000 in one-time processing fees related both to exiting the custody business and to installation of a new data management system for allowance calculations. Loss on disposal of fixed assets increased $432,000, due primarily to the write-off of a former branch which had contained a now relocated ATM, that has been shuttered and moved into other real estate owned following the 2014 business planning process. The company reported a net recovery of $48,000 in the cost of operation of OREO in 2013Q4, compared to a net cost of $142,000 in 2013Q3 and a net cost of $1.2 million in 2012Q4. The reduction in adjusted noninterest expense in 2013Q4 from 2012Q4 resulted primarily from cost savings associated with the merger with Citizens South.              

The company's effective tax rate decreased to 27.9% in 2013Q4, compared to 33.3% in 2013Q3, due primarily to the nontaxable $1.1 million gain on settling the contingent underwriting fee liability. The company's effective tax rate decreased to 27.9% in 2013Q4, compared to 36.9% in 2012Q4, due both to the nontaxable gain and to lower nondeductible merger-related expenses.

Income Statement – Twelve Months Ended December 31, 2013

Park Sterling reported a $10.7 million, or 248%, increase in net income available to common shareholders to $15.0 million, or $0.34 per share, for the twelve months ended December 31, 2013 ("FY2013"), compared to net income available to common shareholders of $4.3 million, or $0.12 per share, for the twelve months ended December 31, 2012 ("FY2012").

Park Sterling reported an $8.9 million, or 119%, increase in adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, to $16.3 million, or $0.37 per share, in FY2013, compared to adjusted net income available to common shareholders of $7.5 million, or $0.20 per share, in FY2012.

The increase in net income available to common shareholders in FY2013 from FY2012 stemmed primarily from the inclusion of a full year of operating results from Citizens South, which merged with the company in 2012Q4. Net interest income increased $20.9 million, or 36%, in FY2013 to $72.4 million, compared to $51.3 million in FY2012. Noninterest income increased $3.5 million, or 30.0%, in FY2013 to $15.2 million, compared to $11.6 million in FY2012. Provision expense decreased $1.3 million, or 63%, in FY2013 to $746,000, compared to $2.0 million in FY2012, reflecting improved asset quality. Noninterest expenses increased $9.8 million, or 18.1%, in FY2013 to $64.1 million, compared to $54.3 million in FY2012.

Balance Sheet

Total assets increased $20.9 million, or 1%, at 2013Q4 to $1.96 billion, compared to total assets at 2013Q3 of $1.94 billion. Securities increased $45.5 million, or 13%, to $407.4 million at 2013Q4, compared to $361.8 million at 2013Q3. The increase in securities resulted from the company initiating a $50 million investment strategy in December 2013. Interest income from the strategy is intended to partially offset expenses associated with the new Richmond loan production office and other hiring initiatives. The strategy includes $25 million of agency collateralized mortgage obligations and $25 million of agency pass-through mortgage-backed securities, which were funded by a seven-year commitment of floating rate broker-dealer sweep accounts through a brokered money market deposit program. The future interest rate risk on these floating rate deposits is hedged through the combination of a $12.5 million five-year interest rate swap, a $12.5 million seven-year interest rate swap and a $25 million two-year forward starting five-year interest rate swap.

The company held four investments in senior tranches of collateralized loan obligations (CLOs) totaling $23.6 million at 2013Q4. The collateral eligibility language in one of the securities, totaling $5.0 million, was amended during the fourth quarter to comply with the new bank investment criteria under the Volcker Rule. The company is awaiting final regulatory clarification on bank investment criteria, if any, and intended document amendment strategies, if any, from the CLO managers on the three other securities before determining any disposition plans for those investments. The three other securities had a net unrealized loss of $274,000 at 2013Q4 that may result in the company recognizing other than temporary impairment should they be determined not to comply with the Volcker Rule. The company held no other securities potentially affected by the Volcker Rule at 2013Q4.  

Total loans, excluding loans held for sale, decreased $20.5 million, or 2%, to $1.30 billion in 2013Q4, compared to $1.32 billion in 2013Q3. In terms of geographic mix, the company's  metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina and Greenville and Charleston, South Carolina, reported an $8.0 million, or 6% annualized, increase in total loans to $579.5 million, due to successful origination efforts. The community markets reported a $12.1 million, or 11% annualized, decrease in total loans to $414.2 million, primarily due to expected runoff in acquired loans. The company's central business units, which include mortgage, builder finance, asset-based lending, special assets and net acquisition accounting fair market value adjustments, reported a $16.4 million, or 20% annualized, decrease in total loans to $302.0 million, as a reduction in special asset loans, including covered loans, more than offset growth in builder finance.

The company's loan mix shifted slightly at 2013Q4 compared to 2013Q3. Total consumer loans decreased to 29% from 30% of total loans, with residential mortgages and home equity lines of credit at 13% and 11% of total, respectively. The combination of commercial and industrial and owner-occupied real estate loans decreased to 30% from 31% of total loans. Investor owned commercial real estate increased to 30% from 28% of total loans. Acquisition, construction and development (AC&D) remained at 11% of total loans. Residential development lending (lots and land), which are included in AC&D, decreased to 4% from 5% of total loans. Residential development lending, which led to material charge-offs in 2010 and 2011, is no longer a focus area for the company.  

In terms of accounting designations, compared to 2013Q3, (i) noncovered PCI loans decreased $16.2 million, or 14%, net of fair market value acquisition related adjustments, to $95.8 million in 2013Q4; (ii) noncovered acquired performing loans decreased $29.1 million, or 7%, net of fair market value acquisition related adjustments, to $402.0 million; (iii) covered PCI and acquired performing loans decreased $4.9 million, or 7%, net of fair market value acquisition adjustments, to $70.4 million; and (iv) non-acquired loans increased $29.7 million, or 4%, to $727.6 million. Non-acquired loans include certain renewed and/or restructured acquired performing loans that are redesignated as non-acquired. Noncovered acquired performing loans include a remaining $4.4 million net acquisition accounting fair market value adjustment, representing a 1.08% "mark," noncovered PCI loans include a remaining $20.5 million net acquisition accounting fair market value adjustment, representing a 17.63% "mark," and covered PCI and acquired performing loans include a remaining $12.9 million net acquisition accounting fair market value adjustment, representing a 15.44% "mark."  

Total deposits increased $43.9 million, or 3%, to $1.60 billion at 2013Q4, compared to $1.56 billion at 2013Q3. Noninterest bearing demand deposits decreased $6.3 million, or 2%, to $255.9 million (16% of total deposits). Non-brokered money market, NOW and savings deposits increased $6.8 million, or 1%, to $736.0 million (46% of total deposits).  Local time deposits decreased $26.2 million, or 6%, to $442.0 million (28% of total deposits). Finally, brokered deposits increased $69.4 million, or 72%, to $166.0 million (10% of total deposits). The increase in brokered deposits was driven by the previously discussed broker-dealer sweep accounts used to fund the investment strategy. Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 87% of total deposits at 2013Q4 compared to 91% at 2013Q3.  

Total borrowings decreased $21.6 million, or 22%, to $78.0 million at 2013Q4 compared to $99.6 million at 2013Q3, as the company replaced short-term borrowings with brokered deposits. Borrowings at 2013Q4 included $55.0 million in FHLB borrowings, $15.2 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments, and $6.9 million of Tier 2-eligible subordinated debt. The company entered into a $20 million three-year forward starting, five-year interest rate swap in October 2013 as a cash flow hedge against future interest rate risk in a portion of its floating rate FHLB borrowings.  

Total shareholders' equity increased $2.3 million, or 1%, to $262.1 million at 2013Q4 compared to $259.8 million at 2013Q3, driven by retained earnings. In 2013Q4, the company repurchased approximately 56,000 shares of common stock at an average cost of $6.49 per share, for a total of approximately $365,000. The repurchases were conducted in the open market under the previously announced 2.2 million share repurchase authorization. The company's ratio of tangible common equity to tangible assets increased to 11.79% at 2013Q4 from 11.78% at 2013Q3. The company's Tier 1 leverage ratio increased to 11.63% at 2013Q4 from 11.11% at 2013Q3.      

Asset Quality

Asset quality continued to improve in the fourth quarter and remains a point of strength for the company. Nonperforming loans decreased $2.4 million, or 16%, to $12.3 million at 2013Q4, or 0.95% of total loans, compared to $14.7 million at 2013Q3, or 1.11% of total loans. Nonperforming assets decreased $2.8 million, or 9%, to $26.8 million at 2013Q4, or 1.37% of total assets, compared to $29.5 million at 2013Q3, or 1.52% of total assets. Nonperforming assets include $5.1 million of covered OREO for which the company expects 80% of losses and associated expenses to be reimbursed under its FDIC loss share agreements.

The company reported net charge-offs of $805,000, or 0.24% of average loans (annualized), in 2013Q4, compared to net charge-offs of $1.8 million, or 0.53% of average loans (annualized), in 2013Q3 and a net recovery of $390,000, or 0.11% of average loans (annualized), in 2012Q4. The company reported adjusted net charge-offs, which exclude net charge-offs related to PCI loans, of $805,000, or 0.24% of average loans (annualized) in 2013Q4, compared to adjusted net charge-offs of $816,000, or 0.25% of average loans (annualized), in 2013Q3 and an adjusted net recovery of $390,000, or 0.11% of average loans (annualized), in 2013Q4.

The allowance for loan losses was $8.8 million, or 0.68% of total loans, at 2013Q4, compared to $8.7 million, or 0.66% of total loans, at 2013Q3. The increase in allowance included (i) a $232,000, or 4%, increase in the quantitative component, resulting from higher charge-offs in 2013Q4 that increased the historical lookback rates for certain loan categories, including commercial real estate; (ii) a $345,000, or 24%, reduction in the qualitative component, resulting from an adjustment relating to commercial real estate to account for the capture of higher charge-offs in the historical lookback rate; (iii) a $62,000, or 7%, decrease in the specific component; and (iv) a $354,000, or 5900%, increase in the PCI component resulting from impairment on a single covered loan pool due to a decline in estimated cash flows.

During the first quarter of 2011, and as contemplated in Park Sterling Bank's 2010 public 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, of which 554,400 remained outstanding at 2013Q4, 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. As of December 31, 2013, 13,860 of these restricted shares had been forfeited.

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (January 30, 2014). 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 10039428.

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 headquartered in the Charlotte area and has 43 banking offices stretching across the Carolinas and into North Georgia, as well as a loan production office in the Greater Richmond region. 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, including adjusted return on average assets, 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. Park Sterling cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: 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; failure to effectively redeploy resources from custody business to the core asset management business; failure to generate an adequate return on investment related to the Richmond loan production office or other hiring initiatives; failure to generate future growth in metropolitan market loan balances; 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; 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; the possibility of recognizing other than temporary impairments on holdings of collateralized loan obligation securities as a result of the Volcker Rule; the impacts on the company of a potential increasing rate environment; the potential impacts of any additional government shutdown and further debt ceiling impasse, including the risk of a U.S. credit rating downgrade or default, or continued global economic instability, which could cause disruptions in the financial markets, impact interest rates, and cause other potential unforeseen consequences; 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, and future actions by the board of directors, in each case impacting repurchases of common stock or declaration of dividends; 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, 
  2013 2013 2013 2013 2012
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 Interest income           
 Loans, including fees   $ 17,753  $ 17,970  $ 18,805  $ 18,140  $ 20,269
 Taxable investment securities   1,599  1,494  1,068  866  792
 Tax-exempt investment securities   185  187  195  190  191
 Nonmarketable equity securities   41  37  25  48  80
 Interest on deposits at banks   24  48  44  62  79
 Federal funds sold   --   --   7  17  11
 Total interest income   19,602  19,736  20,144  19,323  21,422
 Interest expense           
 Money market, NOW and savings deposits   384  399  379  407  491
 Time deposits   948  455  527  608  777
 Short-term borrowings   --  --  1  6  7
 FHLB advances   139  137  137  137  143
 Subordinated debt   429  431  429  429  472
 Total interest expense   1,900  1,422  1,473  1,587  1,890
 Net interest income   17,702  18,314  18,671  17,736  19,532
 Provision for loan losses   780  (419)  75  309  994
 Net interest income after provision   16,922  18,733  18,596  17,427  18,538
 Noninterest income           
 Service charges on deposit accounts   629  637  616  764  879
 Mortgage banking income   777  401  977  968  815
 Income from wealth management activities   848  910  731  708  693
 ATM and card income   555  639  692  488  448
 Income from bank-owned life insurance   417  537  528  381  450
 Gain (loss) on sale of securities available for sale   (6)  --  104  --  --
 Other noninterest income   1,184  133  320  149  307
 Total noninterest income   4,404  3,257  3,968  3,458  3,592
 Noninterest expenses           
 Salaries and employee benefits   8,386  8,606  8,800  8,778  11,041
 Occupancy and equipment   1,941  1,861  1,980  1,908  1,942
 Data processing and outside service fees   1,389  1,268  1,640  1,653  1,599
 Legal and professional fees   655  732  861  893  1,077
 Deposit charges and FDIC insurance   379  372  409  487  473
 (Gain) loss on disposal of fixed assets   430  (2)  --  (16)  6
 Communication fees   425  432  448  432  319
 Postage and supplies   194  188  298  329  360
 Loan and collection expense   411  556  679  326  248
 Core deposit intangible amortization   257  257  257  257  257
 Advertising and promotion   282  186  150  220  367
 Net cost of operation of other real estate owned   (48)  142  (36)  (428)  1,167
 Other noninterest expense   1,025  1,072  1,298  1,082  1,181
 Total noninterest expenses   15,726  15,670  16,784  15,921  20,037
 Income before income taxes   5,600  6,320  5,780  4,964  2,093
 Income tax expense   1,561  2,106  1,968  1,724  771
 Net income   4,039  4,214  3,812  3,240  1,322
 Preferred dividends   --  --  302  51  51
 Net income available to common shares   $ 4,039  $ 4,214  $ 3,510  $ 3,189  $ 1,271
           
 Earnings per common share, fully diluted   $ 0.09  $ 0.10  $ 0.08  $ 0.07  $ 0.03
 Weighted average diluted common shares   44,288,998  44,273,821  44,204,581  44,069,053  44,025,874
           
 
PARK STERLING CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
TWELVE MONTH RESULTS
($ in thousands, except per share amounts) December 31, December 31,
  2013 2012
  (Unaudited) (Unaudited)
Interest income    
Loans, including fees  $ 72,669  $ 53,142
Taxable investment securities  5,029  3,606
Tax-exempt investment securities  756  750
Nonmarketable equity securities  150  194
Interest on deposits at banks  177  153
Federal funds sold  24  49
Total interest income  78,805  57,894
Interest expense    
Money market, NOW and savings deposits  1,570  1,488
Time deposits  2,538  2,951
Short-term borrowings  7  11
FHLB advances  550  600
Subordinated debt  1,717  1,520
Total interest expense  6,382  6,570
Net interest income  72,423  51,324
Provision for loan losses  746  2,023
Net interest income after provision  71,677  49,301
Noninterest income    
Service charges on deposit accounts  2,646  1,814
Mortgage banking income  3,123  2,478
Income from wealth management activities  3,198  2,619
ATM and card income  2,373  1,322
Income from bank-owned life insurance  1,863  1,264
Gain (loss) on sale of securities available for sale  98  1,478
Other noninterest income  1,785  634
Total noninterest income  15,086  11,609
Noninterest expenses    
Salaries and employee benefits  34,570  29,343
Occupancy and equipment  7,691  4,654
Data processing and outside service fees  5,950  4,371
Legal and professional fees  3,142  3,190
Deposit charges and FDIC insurance  1,647  1,250
(Gain) loss on disposal of fixed assets  412  84
Communication fees  1,737  945
Postage and supplies  1,009  791
Loan and collection expense  1,972  1,221
Core deposit intangible amortization  1,029  564
Advertising and promotion  839  781
Net cost of operation of other real estate owned  (371)  3,462
Other noninterest expense  4,472  3,605
Total noninterest expenses  64,099  54,261
Income before income taxes  22,664  6,649
Income tax expense  7,359  2,306
Net income  15,305  4,343
Preferred dividends  353  51
Net income available to common shares  $ 14,952  $ 4,292
     
Earnings per common share, fully diluted  $ 0.34  $ 0.12
Weighted average diluted common shares  44,053,253  35,108,229
     
 
 PARK STERLING CORPORATION 
 CONDENSED CONSOLIDATED BALANCE SHEETS 
 ($ in thousands)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2013 2013 2013 2013 2012*
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   
 ASSETS           
 Cash and due from banks   $ 13,087  $ 11,780  $ 11,746  $ 19,249  $ 36,716
 Interest-earning balances at banks   41,680  40,222  100,469  51,861  101,431
 Investment securities available for sale   349,491  328,396  329,720  299,073  245,571
 Investment securities held to maturity   51,972  26,636  --  --  --
 Nonmarketable equity securities   5,905  6,805  5,905  5,913  7,422
 Federal funds sold   300  695  495  51,155  45,995
 Loans held for sale   2,430  3,070  10,985  11,659  14,147
 Loans - Non-covered   1,224,674  1,240,307  1,219,513  1,237,813  1,255,019
 Loans - Covered   71,134  76,035  85,146  91,936  101,688
 Allowance for loan losses   (8,831)  (8,652)  (10,847)  (10,749)  (10,591)
 Net loans   1,286,977  1,307,690  1,293,812  1,319,000  1,346,116
           
 Premises and equipment, net   55,923  56,670  56,929  57,596  57,222
 FDIC receivable for loss share agreements   10,025  13,959  14,848  15,340  18,697
 Other real estate owned - non-covered   9,404  8,708  9,741  13,597  18,427
 Other real estate owned - covered   5,088  6,173  6,542  7,654  6,646
 Bank-owned life insurance   47,832  47,485  47,019  46,546  46,133
 Deferred tax asset   36,318  38,528  40,595  39,140  40,926
 Goodwill   26,420  26,420  26,420  26,420  26,420
 Core deposit intangible   8,629  8,886  9,143  9,401  9,658
 Other assets   9,309  7,768  8,554  9,967  11,267
           
 Total assets   $ 1,960,790  $ 1,939,891  $ 1,972,923  $ 1,983,571  $ 2,032,794
           
 LIABILITIES AND SHAREHOLDERS' EQUITY           
           
 Deposits:           
 Demand noninterest-bearing   $ 255,861  $ 262,114  $ 265,246  $ 256,931  $ 243,495
 Money market, NOW and savings   799,596  729,209  743,791  733,493  758,763
 Time deposits   544,428  564,640  584,068  604,397  629,746
 Total deposits   1,599,885  1,555,963  1,593,105  1,594,821  1,632,004
           
 Short-term borrowings   996  2,702  2,176  10,368  10,143
 FHLB advances   55,000  75,000  55,000  55,000  70,000
 Subordinated debt   22,052  21,932  21,812  21,692  21,573
 Accrued expenses and other liabilities   20,774  24,541  23,773  22,705  23,372
 Total liabilities   1,698,707  1,680,138  1,695,866  1,704,586  1,757,092
           
 Shareholders' equity:           
 Preferred stock   --  --  20,500  20,500  20,500
 Common stock   44,731  44,761  44,701  44,648  44,576
 Additional paid-in capital   222,559  222,559  221,935  221,450  220,996
 Accumulated deficit   (405)  (3,549)  (6,869)  (10,379)  (13,568)
 Accumulated other comprehensive income   (4,802)  (4,018)  (3,210)  2,766  3,198
 Total shareholders' equity   262,083  259,753  277,057  278,985  275,702
           
 Total liabilities and shareholders' equity   $ 1,960,790  $ 1,939,891  $ 1,972,923  $ 1,983,571  $ 2,032,794
           
 Common shares issued and outstanding   44,730,669  44,761,384  44,700,805  44,648,165  44,575,853
* Derived from audited financial statements. Revised to reflect measurement period adjustments to goodwill.
 
 
PARK STERLING CORPORATION
SUMMARY OF LOAN PORTFOLIO
($ in thousands)
  December 31, September 30, June 30, March 31, December 31,
  2013 2013 2013 2013 2012*
BY LOAN TYPE (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Commercial:          
 Commercial and industrial  $ 122,400  $ 131,523  $ 124,773  $ 118,796  $ 119,132
 Commercial real estate (CRE) - owner-occupied  267,581  273,340  274,043  285,353  299,416
 CRE - investor income producing  382,187  371,903  368,556  367,434  371,957
 Acquisition, construction and development (AC&D) -- 1-4 Family Construction  19,959  23,028  16,886  18,207  33,467
 AC&D - CRE construction  65,589  55,812  39,702  45,410  42,555
 AC&D - Lots and land  56,759  63,944  72,566  77,252  64,639
 Other commercial  3,849  3,941  3,521  4,894  5,628
 Total commercial loans  918,324  923,491  900,047  917,346  936,794
           
Consumer:          
 Residential mortgage  173,376  174,780  180,195  180,368  188,532
 Home equity lines of credit  143,754  146,484  148,686  156,802  163,625
 Residential construction  40,821  46,499  52,669  55,205  52,812
 Other loans to individuals  18,795  24,725  22,896  20,237  15,553
 Total consumer loans  376,746  392,488  404,446  412,612  420,522
 Total loans  1,295,070  1,315,979  1,304,493  1,329,958  1,357,316
 Deferred costs (fees)  738  363  166  (209)  (609)
 Total loans, net of deferred costs (fees)  $ 1,295,808  $ 1,316,342  $ 1,304,659  $ 1,329,749  $ 1,356,707
           
* Derived from audited financial statements.          
           
  December 31, September 30, June 30, March 31, December 31,
  2013 2013 2013 2013 2012
BY ACQUIRED AND NON-ACQUIRED (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Acquired loans - performing  $ 404,440  $ 433,695  $ 493,660  $ 556,135  $ 614,518
Acquired loans - purchase credit impaired  163,787  184,762  201,585  215,968  234,282
Total acquired loans  568,227  618,457  695,245  772,103  848,800
Non-acquired loans, net of deferred costs (fees)**  727,581  697,885  609,414  557,646  507,907
Total loans  $ 1,295,808  $ 1,316,342  $ 1,304,659  $ 1,329,749  $ 1,356,707
           
** 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,
  2013 2013 2013 2013 2012
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of period allowance  $ 8,652  $ 10,847  $ 10,749  $ 10,591  $ 9,207
Loans charged-off  (1,471)  (1,917)  (1,133)  (782)  (330)
Recoveries of loans charged-off  666  141  859  631  720
 Net charge-offs  (805)  (1,776)  (274)  (151)  390
           
Provision expense (release)  984  (419)  372  309  994
Benefit attributable to FDIC loss share agreements  (204)  --  (297)  --  --
 Total provision expense charged to operations  780  (419)  75  309  994
Provision expense recorded through FDIC loss share receivable  204  --  297  --  --
End of period allowance  $ 8,831  $ 8,652  $ 10,847  $ 10,749  $ 10,591
           
Net charge-offs (recoveries)  $ 805  $ 1,776  $ 274  $ 151  $ (390)
Net charge-offs (recoveries) to average loans (annualized) 0.24% 0.53% 0.08% 0.05% -0.11%
           
             
PARK STERLING CORPORATION
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
THREE MONTHS
($ in thousands) December 31, 2013     December 31, 2012    
  Average Income/ Yield/ Average Income/ Yield/
  Balance Expense Rate (3) Balance Expense Rate (3)
Assets            
Interest-earning assets:            
 Loans and loans held for sale, net (1)(2)  $ 1,310,381  $ 17,753 5.38%  $ 1,388,648  $ 20,269 5.81%
 Fed funds sold  658  -- 0.00%  24,930  11 0.18%
 Taxable investment securities  340,316  1,599 1.88%  242,606  792 1.31%
 Tax-exempt investment securities  16,614  185 4.45%  18,384  191 4.16%
 Other interest-earning assets  54,719  65 0.47%  108,675  159 0.58%
             
 Total interest-earning assets  1,722,688  19,602 4.51%  1,783,243  21,422 4.78%
             
Allowance for loan losses  (9,458)      (10,594)    
Cash and due from banks  12,650      33,500    
Premises and equipment  56,551      57,399    
Goodwill  26,587      7,325    
Intangible assets  8,715      9,262    
Other assets  119,026      140,362    
             
 Total assets  $ 1,936,759      $ 2,020,497    
             
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
 Interest-bearing demand  $ 294,056  $ 61 0.08%  $ 293,533  $ 118 0.16%
 Savings and money market  451,395  323 0.28%  434,766  373 0.34%
 Time deposits - core  455,284  763 0.66%  537,469  437 0.32%
 Time deposits - brokered  101,046  185 0.73%  122,470  340 1.10%
 Total interest-bearing deposits  1,301,781  1,332 0.41%  1,388,238  1,268 0.36%
 Federal Home Loan Bank advances  61,304  139 0.90%  55,163  143 1.03%
 Subordinated debt  21,994  429 7.74%  16,810  472 11.17%
 Other borrowings  2,313  -- 0.00%  11,350  7 0.26%
 Total borrowed funds  85,611  568 2.63%  83,323  622 2.97%
             
 Total interest-bearing liabilities  1,387,392  1,900 0.54%  1,471,561  1,890 0.51%
             
Net interest rate spread    17,702 3.97%    19,532 4.27%
             
Noninterest-bearing demand deposits  262,142      259,604    
Other liabilities  24,008      11,642    
Shareholders' equity  263,217      277,690    
             
Total liabilities and shareholders' equity  $ 1,936,759      $ 2,020,497    
             
Net interest margin      4.08%     4.36%
Net interest margin (fully tax-equivalent) (4)     4.11%     4.39%
             
(1) Nonaccrual loans are included in the average loan balances. 
(2) Interest income and yields for the three months ended December 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 34.70% and 32.15% tax rate at December 31, 2013 and 2012, respectively, for nontaxable securities and loans.
 
 
PARK STERLING CORPORATION
SELECTED RATIOS
($ in thousands, except per share amounts) December 31, September 30, June 30, March 31, December 31,
  2013 2013 2013 2013 2012
  Unaudited Unaudited Unaudited Unaudited Unaudited
ASSET QUALITY          
Nonaccrual loans  $ 8,428  $ 6,778  $ 6,832  $ 9,725  $ 10,374
Troubled debt restructuring  3,854  7,527  7,767  7,383  7,367
Past due 90 days plus (and still accruing)  17  357  196  2  77
Nonperforming loans  12,299  14,662  14,795  17,110  17,818
OREO  14,492  14,881  16,283  21,251  25,073
Nonperforming assets  26,791  29,543  31,078  38,361  42,891
Past due 30-59 days (and still accruing)  1,437  663  2,488  1,250  607
Past due 60-89 days (and still accruing)  255  459  1,606  521  121
           
Nonperforming loans to total loans 0.95% 1.11% 1.13% 1.29% 1.31%
Nonperforming assets to total assets 1.37% 1.52% 1.58% 1.93% 2.11%
Allowance to total loans 0.68% 0.66% 0.83% 0.81% 0.78%
Allowance to nonperforming loans 71.80% 59.01% 73.32% 62.82% 59.44%
Allowance to nonperforming assets 32.96% 29.29% 34.90% 28.02% 24.69%
Past due 30-89 days (accruing) to total loans 0.13% 0.09% 0.31% 0.13% 0.05%
Net charge-offs (recoveries) to average loans 0.24% 0.53% 0.08% 0.05% -0.11%
(annualized)          
           
CAPITAL          
Book value per common share  $ 5.92  $ 5.87  $ 5.80  $ 5.87  $ 5.80
Tangible book value per common share**  $ 5.16  $ 5.10  $ 5.03  $ 5.07  $ 4.99
Common shares outstanding  44,730,669  44,761,384  44,700,805  44,648,165  44,575,853
Average dilutive common shares outstanding  44,288,998  44,273,821  44,204,581  44,069,053  44,025,874
           
Tier 1 capital  $ 218,552  $ 211,121  $ 223,516  $ 221,435  $ 217,188
Tier 2 capital  15,725  15,418  17,742  17,644  17,611
Total risk based capital  234,277  226,539  241,258  239,079  234,799
Risk weighted assets  1,424,112  1,435,214  1,399,273  1,436,350  1,452,229
Average assets for leverage ratio  1,879,283  1,900,990  1,894,989  1,906,061  1,947,156
           
Tier 1 ratio 15.35% 14.71% 15.97% 15.42% 14.96%
Total risk based capital ratio 16.45% 15.78% 17.24% 16.64% 16.17%
Tier 1 leverage ratio 11.63% 11.11% 11.80% 11.62% 11.15%
Tangible common equity to tangible assets** 11.79% 11.78% 11.41% 11.43% 10.97%
           
LIQUIDITY          
Net loans to total deposits 80.44% 84.04% 81.21% 82.71% 82.48%
Reliance on wholesale funding 14.55% 11.85% 10.61% 11.35% 12.27%
           
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)        
Return on Average Assets 0.83% 0.85% 0.72% 0.65% 0.25%
Return on Average Common Equity 6.09% 6.46% 5.38% 5.01% 1.96%
Net interest margin (non-tax equivalent) 4.08% 4.16% 4.30% 4.15% 4.36%
           
INCOME STATEMENT (ANNUAL RESULTS)          
Return on Average Assets 0.76% n/a n/a n/a 0.32%
Return on Average Equity 5.42% n/a n/a n/a 1.99%
Net interest margin (non-tax equivalent) 4.17% n/a n/a n/a 4.27%
           
** 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 total revenues, adjusted allowance for loan losses, adjusted net charge-offs (recoveries) to average loans (annualized), 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, adjusted noninterest expenses and adjusted total revenues (which exclude merger-related expenses and gain on sale of securities, as applicable), adjusted net interest margin (which excludes accelerated accretion of net acquisition accounting fair market value adjustments), adjusted return on average assets and adjusted return on average equity (which exclude 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)   December 31,   September 30,   June 30,   March 31,   December 31, 
  2013 2013 2013 2013 2012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
 Adjusted net income (three months)           
Pretax income (as reported)  $ 5,600  $ 6,320  $ 5,780  $ 4,964  $ 2,093
Plus: merger-related expenses  386  167  822  836  3,167
 (gain) loss on sale of securities  6  --  (104)  --  --
Adjusted pretax income  5,992  6,487  6,498  5,800  5,260
Tax expense  1,697  2,162  2,235  1,995  1,691
Adjusted net income  $ 4,295  $ 4,325  $ 4,263  $ 3,805  $ 3,569
Preferred dividends  --   --   302  51  51
Adjusted net income available to common shareholders  $ 4,295  $ 4,325  $ 3,961  $ 3,754  $ 3,518
           
Divided by: weighted average diluted shares  44,288,998  44,273,821  44,204,581  44,069,053  44,025,874
Adjusted net income available to common shareholders per share  $ 0.10  $ 0.10  $ 0.09  $ 0.09  $ 0.08
Estimated tax rate 28.32% 33.40% 34.40% 34.40% 32.15%
           
 Adjusted net income (twelve months)           
Pretax income (as reported)  $ 22,664        $ 6,649
Plus: merger-related expenses  2,211        5,895
 (gain) loss on sale of securities  (98)        (1,478)
Adjusted pretax income  24,777        11,066
Tax expense  8,089        3,558
Adjusted net income  $ 16,688        $ 7,508
Preferred dividends  353        51
Adjusted net income available to common shareholders  $ 16,335        $ 7,457
           
Divided by: weighted average diluted shares  44,053,253        35,108,229
Adjusted net income available to common shareholders per share  $ 0.37        $ 0.21
Estimated tax rate 32.65%       32.15%
           
 Adjusted net interest margin           
Net interest income (as reported)  $ 17,702  $ 18,314  $ 18,671  $ 17,736  $ 19,532
Less: accelerated mark accretion  (365)  (529)  (560)  --  (921)
Less: other accelerated accretion  --  --  --  --  (121)
Adjusted net interest income  17,337  17,785  18,111  17,736  18,490
Divided by: average earning assets  1,722,688  1,747,886  1,742,312  1,732,366  1,782,922
Mutliplied by: annualization factor  3.97  3.97  4.01  4.06  3.98
Adjusted net interest margin 3.99% 4.04% 4.17% 4.15% 4.13%
Net interest margin 4.08% 4.16% 4.30% 4.15% 4.36%
           
 Adjusted noninterest income           
Noninterest income (as reported)  $ 4,404  $ 3,257  $ 3,968  $ 3,458  $ 3,592
Less: (gain) loss on sale of securities  6  --  (104)  --  --
Adjusted noninterest income  $ 4,410  $ 3,257  $ 3,864  $ 3,458  $ 3,592
           
 Adjusted noninterest expense           
Noninterest expense (as reported)  $ 15,726  $ 15,670  $ 16,784  $ 15,921  $ 20,037
Less: merger-related expenses  (386)  (167)  (822)  (836)  (3,167)
Adjusted noninterest expense  15,340  15,503  15,962  15,085  16,870
           
 Adjusted total revenues           
Net interest income (as reported)  $ 17,702  $ 18,314  $ 18,671  $ 17,736  $ 19,532
Adjusted noninterest income  4,410  3,257  3,864  3,458  3,592
Adjusted total revenues  $ 22,112  $ 21,571  $ 22,535  $ 21,194  $ 23,124
           
           
 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, 
  2013 2013 2013 2013 2012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
 Adjusted return on average assets           
Adjusted net income available to common shareholders  $ 4,295  $ 4,325  $ 3,961  $ 3,754  $ 3,518
Divided by: average assets  1,936,759  1,967,904  1,967,736  1,978,144  2,020,662
Mutliplied by: annualization factor  3.97  3.97  4.01  4.06  3.98
Adjusted return on average assets 0.88% 0.87% 0.81% 0.77% 0.69%
Return on average assets 0.83% 0.85% 0.72% 0.65% 0.25%
           
 Adjusted return on average equity           
Adjusted net income available to common shareholders  $ 4,295  $ 4,325  $ 3,961  $ 3,754  $ 3,518
Divided by: average common equity  263,217  258,860  261,511  258,234  257,335
Mutliplied by: annualization factor  3.97  3.97  4.01  4.06  3.98
Adjusted return on average equity 6.47% 6.63% 6.07% 5.90% 5.44%
Return on average equity 6.09% 6.46% 5.38% 5.01% 1.96%
           
 Tangible common equity to tangible assets           
Total assets  $ 1,960,790  $ 1,939,891  $ 1,972,923  $ 1,983,571  $ 2,032,794
Less: intangible assets  (35,049)  (35,306)  (35,563)  (35,821)  (36,078)
Tangible assets  $ 1,925,741  $ 1,904,585  $ 1,937,360  $ 1,947,750  $ 1,996,716
           
Total common equity  $ 262,083  $ 259,753  $ 256,557  $ 258,485  $ 255,202
Less: intangible assets  (35,049)  (35,306)  (35,563)  (35,821)  (36,078)
Tangible common equity  $ 227,034  $ 224,447  $ 220,994  $ 222,664  $ 219,124
           
Tangible common equity  $ 227,034  $ 224,447  $ 220,994  $ 222,664  $ 219,124
Divided by: tangible assets  $ 1,925,741  $ 1,904,585  $ 1,937,360  $ 1,947,750  $ 1,996,716
Tangible common equity to tangible assets 11.79% 11.78% 11.41% 11.43% 10.97%
Common equity to assets 13.37% 13.39% 13.00% 13.03% 12.55%
           
 Tangible book value per share           
Issued and outstanding shares  44,730,669  44,761,384  44,700,805  44,648,165  44,575,853
Less: nondilutive restricted stock awards  (770,399)  (753,900)  (749,900)  (718,260)  (646,260)
Period end dilutive shares  43,960,270  44,007,484  43,950,905  43,929,905  43,929,593
           
Tangible common equity  $ 227,034  $ 224,447  $ 220,994  $ 222,664  $ 219,124
Divided by: period end dilutive shares  43,960,270  44,007,484  43,950,905  43,929,905  43,929,593
Tangible common book value per share  $ 5.16  $ 5.10  $ 5.03  $ 5.07  $ 4.99
Common book value per share  $ 5.96  $ 5.90  $ 5.84  $ 5.88  $ 5.81
           
 Adjusted allowance for loan losses           
Allowance for loan losses  $ 8,831  $ 8,652  $ 10,847  $ 10,749  $ 10,591
Plus: acquisition accounting FMV adjustments to acquired loans  37,783  41,389  44,179  49,633  53,719
Adjusted allowance for loan losses  $ 46,614  $ 50,041  $ 55,026  $ 60,382  $ 64,310
Divided by: total loans (excluding LHFS)  $ 1,295,808  $ 1,316,342  $ 1,304,659  $ 1,329,749  $ 1,356,707
Adjusted allowance for loan losses to total loans 3.60% 3.80% 4.22% 4.54% 4.74%
Allowance for loan losses to total loans 0.68% 0.66% 0.83% 0.81% 0.78%
           
 Adjusted net charge-offs (recoveries) (annualized)           
Net charge-offs (recoveries)  $ 805  $ 1,776  $ 274  $ 151  $ (390)
Less: net charge-offs (recoveries) of PCI loans (ASC 310-30)  --  (960)  23  (414)  --
Adjusted net charge-offs (recoveries)  $ 805  $ 816  $ 297  $ (263)  $ (390)
Divided by: average loans  $ 1,310,381  $ 1,319,026  $ 1,337,318  $ 1,346,603  $ 1,388,627
Mutliplied by: annualization factor  3.97  3.97  4.01  4.06  3.98
Adjusted net charge-offs (recoveries) (annualized) 0.24% 0.25% 0.09% -0.08% -0.11%
Net charge-offs (recoveries) (annualized) 0.24% 0.53% 0.08% 0.05% -0.11%
           
CONTACT: For additional information contact:         David Gaines         Chief Financial Officer         (704) 716-2134         david.gaines@parksterlingbank.com

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